There's a classic sequence near the end of the 1997 movie Titanic that depicts the ship's sinking.

As the bow of the ship takes on water and slides beneath the ocean, the stern of the ship rises out of the water and ends up vertical. There's a pause as the stern just bobs there in the middle of the ocean leaving the remaining passengers afraid and confused. Then, after a brief pause, the ship quickly sinks.

As I watch economic and political news unfold, I get the distinct impression that in 2008 the liberal ship Titanic hit an economic iceberg (known as reality) and our economy is now on the stern of that ship, just bobbing around in a dark ocean waiting for what comes next... and many are in denial of what comes next.

It's difficult to imagine an economic situation more dangerous than the one in which we find ourselves.

The collapse of the housing market has exceeded that of the Great Depression because we have too many houses and not enough demand, housing prices may yet fall another 25%, and there are still millions of houses in foreclosure. All the debt problems that caused the crisis in 2008 haven't gone away, they've just been transferred to the Federal Reserve or continue to lurk on the balance sheets of banks. Sovereign debt bailouts in Greece, Ireland, and Portugal are exploding.
In addition to out of control federal spending, we have states such as California and Illinois that may go bankrupt or seek a bailout--and both of those states are far larger than Greece. In addition to our huge national debt, we have overwhelming unfunded liabilities of anywhere from $61.6 trillion to $100+ trillion. We continue to bailout other countries via the IMF. And even as our country is collapsing under the weight of debt, we are told that the solution is to increase the amount of debt by raising the debt ceilings.

There won't be tax increases because taxes can't be raised enough to solve the problem, they'd damage the already weak economy, and Republicans aren't suicidal (probably).

Printing money hasn't worked, and we can't continue down the dangerous path of printing money without destroying the dollar.

Economic recovery--were it to materialize--would only succeed at postponing the day of reckoning. But a strong economy is no longer sufficient to overcome the structural spending problems we have.

Fiscal stimulus has failed. Monetary stimulus has failed. Everything Obama has tried has failed.

Pain Now or More Pain Later

The truth is that we have a tough decision to make: We can either kick the can down the road as long as we can, or we can confront reality and deal with it before the problem gets even worse.

The reality of what we're facing is:

• Our spending and debt problems are not imaginary and they're no longer theoretical problems that we can deal with decades in the future. Countries are collapsing under their sovereign debt now. It will be our turn sooner than we think.
  
• We haven't actually dealt with the problems that caused the 2008 crisis. All the debt and toxic assets that caused the original crisis are still with us.
  
• Fiscal stimulus has failed and monetary stimulus has failed. There are no more "magic bullets" left (even if we assume there were any "magic" options in the first place).
  
• No realistic tax increase and/or economic recovery can adequately resolve our fiscal course over the long-term.
  

So we really have a simple choice to make: We can either cut spending now or we can cut spending after the economy collapses.

We Can't Continue In Denial

We simply cannot continue to act like nothing is wrong. We have very big problems--most of them structural--that have formed over the course of decades and, unfortunately, we no longer have the luxury of fixing them with small adjustments over decades. We have just years to fix them, maybe less. The co-chairs of Obama's deficit commission have stated we probably have less than two years.

These outcomes aren't just possible, they're inevitable if we continue on our current course. The precise way in which it plays out is, of course, impossible to predict. But what's not impossible to predict is that our current course of action will conclude with a much-reduced, much-weakened, and much-impoverished United States.

While it's true that Americans as a people--and America as a country--have a history of overcoming daunting odds, we dare not cling to a misguided "hope" that we can never fail. We must not delude ourselves into a dangerous belief that the laws of economics do not apply to us. The laws of economics do apply to us, and we ignore them at our own peril. We have an increasingly small opportunity to correct our course by cutting spending.

2008 was the tip of an iceberg, and liberal economics hit it. Printing money, government stimulus, homeowner bailouts, cash for clunkers, etc. have been liberal attempts to use pumps to get ahead of the flooding. But, in the words of Titanic's character Thomas Andrews, "The pumps buy you time, but minutes only. From this moment, no matter what we do, Titanic will founder. It's a mathematical certainty."

So now we and our economy are on the stern of the liberal ship Titanic, bobbing around in the middle of the ocean. We know what happens next.

The question is whether an economic Carpathia will arrive in time to save America's economy with conservative fiscal policies, or if we're going to go down with the liberal ship and sink beneath the sea of economic collapse.