The September Surprise The political stalemate in Washington has guaranteed massive cuts in defense spending and a massive tax increase on everyone who pays taxes. Not only will the government be starved but so will the economy. Such a certainty will cause a dramatic slowdown in the economy.
Political gridlock will probably put the nation into recession. Just the anticipation of it seems to have significantly slowed economic activity — investment, in particular — as we head into the second half of this year. Of course, Congress talks about it. But it cannot act, or will not act, until December. But while the fiscal cliff is a critical issue, it may not be the next major discriminator in our prosperity. September is a month where unusual and often extremely damaging things seem to happen. It is the month that kicked off the Great Depression and led to Black Monday a month later. It also is the month in which, in 2008, the nation came close to a total economic collapse. Bear Stearns failed. Lehman failed. And the world stood on the brink of another potentially massive depression brought on by financial disarray. Without the forceful intervention of Hank Paulsen and Ben Bernanke, Main Street America would have gone through extraordinarily hard times. In between these two cataclysmic events, there have been numerous sharp stock market downturns in September. Why these events seem to crowd into September is a subject of a great deal of conjecture. There is no consistent answer. But it seems September is the point in the year where people assess where they have gone, and what the next year will be like, and make investment decisions based on their conclusions. To put it another way, reality sets in. If investors see big problems in the economy or in world affairs, they take matters into their own hands rather than hoping they will be fixed by some outside force such as government. Usually, they act defensively. September needs some work. There may be political calculations afoot this year; September may be a decisive month for the world and the world economy and would be an ideal timeframe for some good news. The challenger is hoping for a total collapse of confidence and with it the economy. But the incumbent may has a trick up his sleeve-a surprise to boost confidence and the economy. Obama may have timed the announcement of the E-Cat to coincide with the real start in earnest of the presidential campaign. The president can point to government as the primary force behind the development of an unlimited and wholesome power source. As a political news event, it will surly take the focus off of the national economic doldrums in the US and the sting out of the antigovernment criticisms of the challenger. Cheers: Axil
