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Early 2000s recession



The Early 2000s recession was felt in mostly Western countries, affecting the European Union mostly during 2000 and 2001 and the United States mostly in 2002 and 2003. Canada and Australia avoided the recession for the most part, while Russia, a nation that did not experience prosperity during the 1990s, began to recover. Japan's 1990s recession continued. The Early 2000s recession had been predicted by economists for years, since the boom of the 1990s, which was accompanied by both low inflation and low unemployment, had already ceased in East Asia during that region's 1997 economic crisis. The 1990s were also a period of recession between 1995 and 1998 inclusive. The Early 2000s recession was not as bad as many predicted it would be, nor was it as bad as either of the two previous world-wide recessions.


Possible Causes

The cause of the recession are often ascribed politically either to President Clinton by the Republicans or President Bush by the Democrats. However it would be untrue to suggest that either President caused the economy to recede. Causes often cited include:


 


* The bursting of the dot-com bubble, which caused an end to the 'irrational exuberance' of the late 1990s, in Economic terms, the wealth effect happened in reverse. As consumers saw the value of their assets fall, they were less likely to purchase as many goods and services, choosing instead to save, possibly for fear of job losses. In addition, the Tech bubble saw the creation of many Web businesses with unsustainable business models that survived on high stock prices or venture capital. As the stock bubble deflated, the cash for these companies dried up, and many failed or sharply downsized. In turn, this created a flood of server hardware on the secondary market, and hardware and telecom companies suffered as a result.


 


* Corporate scandals such as the Enron and Worldcom debacles. President Bush is often blamed for the flourishing of corporate scandals in 2001 however it must be remembered that these scandals began two years before he took office, furthermore, these scandals were revealed way into 2001, marking these scandals off as events that made the existing problems worse, rather than initial causes.


 


* The natural end of the economic cycle. The U.S. economy had been expanding since late 1992, according to some economists it was time for the usual cycle to occur.


 


* A high deflationary impact because there were huge budget surpluses at the time ($236 billion in FY01). Keynesian economics suggests that this would slow the economy because the government is hoarding a substantial amount of money.


 


* The millennium bug. Prior to 2000, a lot of money was spent trying to tackle the Y2K bug. After the start of 2000, this spending dried up and many firms decided to cut down sharply on technological investment because they had most of the technology they needed for the meantime, this may have been a key factor in the decline in the stock market after March 2000, and this fall in investment was detrimental to the general performance of the economy.


 


* The economic shock of the September 11th terror attacks, which resulted in a drastic fall in consumer confidence, huge insurance payouts and a fall in the demand for travel and tourism

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