Black September

My "Black September" thesis goes mainstream, causes controversy

When I wrote my diary called Black September a few months ago, I termed it a "first draft of history": an attempt to explain how the shallow, Wall Street and housing-focused recession of early 2008 had suddenly morphed into a systemic economic collapse. I described it as an "autonomous consumer slowdown" that didn't have to happen, but did in large part due to the panicky response by government officials to admittedly serious body-blows to the financial system that occurred seemingly almost daily during last September (and secondly due to the meltdown of 401k assets during the market crash that did not occur until the first 10 days of October).

Now several mainstream economists have independently picked up on the idea, challenging the conventional wisdom that the subsequent economic free-fall is All Because Lehman Brothers was Allowed to Fail. And the conventional wisdom is fighting back.

More evidence for the "Black September" consumer fear thesis

Here's how the NY Times described the "surprse" not-so-bad Fourth Quarter GDP yesterday:

The actual decline in the gross domestic product — at a 3.8 percent annual rate — fell short of the 5 to 6 percent that most economists had expected for the fourth quarter. But that was because consumption collapsed so quickly that goods piled up in inventory, unsold but counted as part of the nation’s output.

“The drop in spending was so fast, so rapid, that production could not be cut fast enough,” said Nigel Gault, chief domestic economist at IHS Global Insight. “That is happening now, and the contraction in the current quarter, as a result, will probably exceed 5 percent.”

(hat tip Ksho1)