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MARCH 2001 – NOVEMBER 2001 (8 Months)

The Early 2000s recession took place in the U.S. for a number of different reasons. One was the collapse of the dot.com bubble. A false high, created in the initial, money-making wave of the internet that swept the world, finally came crashing down to a realistic level.

Also, the September 11th attacks made against the Pentagon and the World Trade Center Towers caused a huge stir among Americans. Although Americans rallied and stayed positive through the whole thing, the economy took a hit as people stopped spending money.

A series of outrageous accounting scandals caused what was considered a huge uproar as well, and also caused a mild contraction on the North American economy. But, thankfully, the recession didn’t last long. And although it is probably still fresh on the minds of some Americans, most have probably moved on. The economy recovered, and things looked up.

The Early 2000s recession was felt in mostly Western countries and had been predicted by economists for years, since the boom of the 1990s, which was accompanied by both low inflation and low unemployment. The collapse of the dot-com bubble, the September 11th attacks, and accounting scandals contributed to a relatively mild contraction in the North American economy.

The bursting of the dot-com bubble

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

Scandals such as Enron and Worldcom. 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.

Deflation

There was a high deflationary impact as 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.