On Tuesday, will we find the New Paradigm is a fraud?

A date for your diary. This coming Tuesday may forever be known as Black Tuesday. Stocks around the world will crash, investors will be ruined, and all market hell will break loose. That, at least, is the view of the global strategy team at stockbrokers Dresdner Kleinwort Wasserstein.

In an internal circular entitled Fraud!, the traditionally outspoken City analyst Albert Edwards has laid out his apocalyptic vision of what this week could bring. Brokers at the bank are being warned that "the risks of an equity crash are high".

The note is based on a particularly grim analysis of the real damage that has been done by the new economy bubble. In particular, he criticises the so-called "New Paradigm" that so many bubble investors readily believed in, the theory that emerging technology would somehow let economies grow quickly but at low risk to inflation.

Mr Edwards takes the view that, despite the last 12 months of market turmoil, Wall Street has never properly abandoned its faith in the New Paradigm. "The belief was integral to the US private sector's willingness to dis-save," he writes. "And despite the current economic and profits malaise, markets are still priced for a return to rapid US economic and profits growth."

But all that could come crashing down this week. On Tuesday, US data for non-farm business productivity will be released. Rapid productivity growth was the structure on which all New Paradigm thinking rested, and Mr Edwards believes that following the data release, estimates of future GDP growth will be revised down.

Although the productivity figures may appear reassuring in today's downbeat context – likely to show 1.7 per cent growth on an annualised basis – they would look terrible if taken as indicative of the long-term "trend" productivity that economists concentrate on. Downward GDP revisions would then prompt a wholesale reassessment of whether the new economy has created any positive change at all. The US market's only available reaction will be to sell itself into a crash. The global importance of the US economy will not be lost on European and Asian markets, which are also expected to tumble.

"One of the last crutches supporting the notion of the New Paradigm is about to be kicked away," says Mr Edwards. "Many in the market remain convinced that whenever we emerge from this downturn, the US will return to trend GDP growth of 3.5 per cent and profits growth in the mid-teens. The problem is that in one fell swoop, one full percentage point has been knocked off longer-term estimates of productivity growth."

He says there is good reason to suppose the critical "trend" productivity is now back at 1.5 per cent rather than the 2.5 per cent everyone had thought we had moved to. He uses lessons from the past. "Make no mistake, these revisions are dynamite but we have been here before: in 1989 exactly the same thing happened to Mrs Thatcher's UK economic miracle. With the stroke of a statistician's pen it was gone."

It would also deal a mighty blow to the credibility of Federal Reserve chairman Alan Greenspan. "The revisions to productivity next week will undoubtedly leave Mr Greenspan looking very foolish. This is important because his credibility is priced into financial markets.

"What is not, is that fact that the US New Paradigm is about to be exposed as a fraud."