But who is the really wobbly one? Amid a torrent of worsening news for the economy, the Prime Minister insisted in interviews to journalists last weekend that the worst of the downturn may be over and that the economy will soon be on a recovery track.

On the basis of economic evidence, it's the chancellor who seems to have the better grip on reality, and the Prime Minister who has gone AWOL. Indeed, if you take the defining characteristic of delusion as sustained detachment from reality, there are few prime ministers who have not at one time or another displayed these features. Some may even say madness is an essential requirement to get through a job that demands a stoic optimism in the face of looming disaster. For all that Darling's admission of reality may chime with the evidence, there are no votes to be had in defeatist hand-wringing – particularly couched in the language the chancellor has used. And voters don't rally to a politician whose faith in the future is any less than their own.

A catatonic optimism in the face of deepening despair now seems the condition in which Gordon Brown finds himself. Warnings came thick and fast last week – from the British Chambers of Commerce, the CBI Distributive Trades Survey and Bank of England Deputy Governor Charles Bean – of a prolonged downturn ahead. Darling's Budget speech forecast of 2.25%-2.75% growth for 2009 looks destined to be missed by a mile. Economic forecasting group Capital Economics reckons that the economy will shrink by around 0.25% next year. So how can Brown credibly bluster his way through the next two months with a disengaged insistence that we will soon be over the worst?

Politically, of course, he has little option – and indeed something of a moral duty – to prevent a mood of black despair from setting in. He may not personally believe a word he is saying, but it is more likely that, in his private broodings, he has come to convince himself that his claim to economic management is still intact and that a series of small Brownite tinkerings can be promoted as an economic recovery package capable of cushioning the pain over the next year. A presentational push on optimism may at least buy him some time. And indeed a case for optimism can still be made. It goes like this. By the end of next year, UK interest rates will be significantly lower. Continuing falls in house prices and marked weakness in consumer spending over the winter and early spring will bear down on inflation, creating room for the Bank of England's Monetary Policy Committee to cut rates.

Is this the crazed vision of those who have lost their senses? MPC member David Blanchflower called again last week for just such cuts. And Capital Economics is forecasting that the base rate will be down from 5% to 3.5% next year. So if it is madness, it is contagious.

Nor does the case for optimism stop there. In America a turning point in the US housing market may now be at hand. The rate of house price decline has slowed. The fall in house prices, measured by the Case-Shiller Index, fell to 0.5% between May and June, down from a monthly decline of 2% at the start of the year. Sales of family houses rose 2.4% last month to 515,000, up from 503,000 in June. And the inventory of unsold homes has also fallen 5.2% to its lowest since October 2004.

Nor does it appear that the world's biggest economy has hurtled into recession – or at least not yet. Figures last Thursday showed the US economy grew much faster in the second quarter than initially reported, boosted by a surge in international trade.

Meanwhile, UK exporters will be able to take heart from the marked weakness of the pound in recent weeks, helping firms to compete in key markets overseas. So a deep and prolonged slowdown can thus be avoided as house prices, consumer confidence and business investment begin to recover. By mid 2010, financial markets will be showing a pronounced recovery and the economy will be back on a growth track, albeit from unsettling lows.

All this may not be sufficient to save Brown's skin, but it is considerably more sanguine than the current news flow would suggest. Indeed, the pessimists get to a similar forecast of a sharp fall in interest rates, albeit by a different route.

The argument of arch dove David Blanchflower is that the MPC needs to get ahead of the game and start to cut rates by more than a quarter of a percentage point. He warned that unemployment could soon rise to two million as construction workers and banks shed jobs and that his own estimate of 30% house price falls was now looking optimistic.

What is intriguing is how Blanchflower's pessimism about the economic outlook is now coming to underpin the stoic optimism of Brown. The core of his analysis is that the speed and scale of the downturn over the next few months will compel not just one but a series of rate reductions if we are not to suffer a downward spiral of rising unemployment, mortgage foreclosures, ever more cautious lending, deepening falls in consumer confidence and spending, and lower business investment leading to further unemployment.

Last week's Distributive Trades Survey from the CBI was as negative as it has ever been, with the balance of employment and the business situation both at historic lows. To date, the conventional wisdom has been that real incomes, rather than employment, will bear the brunt of the slowdown over the next 18 months. But, as Lombard Street Research points out, the retail sector is the third-largest employer in the UK, with the distribution sector accounting for around 15% of jobs in the UK. Poor autumn trading could start to see significant labour shedding across this sector.

Before long the greater problem facing the MPC will not be inflation but deflation: self-feeding falls in prices that douse recovery prospects. Every month of delay heightens the risk of the UK falling into such a spiral.

Is this also delusional ranting? Just a few months ago Blanchflower was a lone voice in the wilderness. But with every piece of worrying data on the economy, his argument is coming to look all the more compelling. Traders on the interest rate futures market now reckon there is a 75% chance that the MPC will cut interest rates by 25 basis points or more by the end of the year. Just a week ago the chances of such a cut were put by traders at just 60%. Every item of miserable data tilts the scales towards earlier – and deeper – rate cuts than had previously been expected.

Blanchflower's pessimism may come to be the prime prop for Brown's optimism; a late but decisive switch in thinking at the Bank of England which may yet save us from that slow-motion economic train wreck that has come to look unavoidable. Thus it is that the crazed optimism of Brown uneasily rests on the ability of the pessimists to win the argument.