Introduction

Over the past couple of decades or so the US economy has gone through a very interesting period. There was a period of expansion in the 1990s that lasted for ten years, the longest ever recorded by an industrialised country. So much so that allegedly a ‘new economy’ emerged with its own ways, which were different from what, traditionally, had been known. The stock market produced enormous gains in the 1990s, especially so in the areas of Technology, Media and Telecommunications. Beginning March 2000 the stock market simply collapsed. The optimism surrounding the ‘new economy’ vanished with it, followed by pessimism. In fact, beginning March 2001 the US economy entered a period of a short and shallow recession, but with huge job losses and a deep profits recession. This prompted the Fed and the US fiscal authorities to pursue expansionary policies. There were no less than 13 reductions in the Fed funds rate, the Federal Reserve System (Fed) interest rate, between the early parts of 2001 and mid-2003, along with expansionary fiscal measures. The surplus in the government budget, created during the expansion, turned into a deficit in the downswing and soared in 2004 even though the economy was rapidly expanding.