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Hot New Theory on What’s Next for the Economy

Earlier we laid out the hot buzz about what’s happened to the economy over the last few months.

It goes like this: The debt ceiling fight caused a major confidence shock, prompting some dreadful market performance and economic data to come out in August. Thus, September hasn’t been so horrible because a) things are not that bad and B) the confidence shock is wearing off.

So what’s coming next?

Well obviously a lot of folks are calling for a double-dip recession, including the highly esteemed ECRI, whose chief Lakshman Achuthan made his big prediction last Friday, September 30.

But even Achuthan doesn’t see a huge recession, and indeed this is the hot sub-meme: If we get a double-dip, it won’t be that deep.

Why? Well, basically because it can’t be.

That point was recently articulated by Goldman’s Jan Hatzius in a note called How Much Downside?

While his “base case” is still that there won’t be a recession, his note applied a “stress test” to the economy, asking how bad things could get if the various components of GDP dropped to floor levels.

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