Problems of Growth and Stability
- New Horizons in International Business series
Edited by Pier Carlo Padoan, Paul A. Brenton and Gavin Boyd
Chapter 7: Cracks in the façade: American economic and financial structures after the boom
7. Cracks in the façade: American economic and financial structures after the boom William R. Emmons and Frank A. Schmid* Many observers of the boom in the USA during the late 1990s concluded that a ‘new era’ had arrived. Real economic growth averaged almost 4 percent annually during the five years ending March 2000, compared to about 3 percent per year during the preceding 20 years. Inflation-adjusted increases in stock prices (measured by the Wilshire, 5000) averaged nearly 19 percent annually during the five years ending March 2000, compared to about 3 percent annual increases during the preceding 20 years. The prestige of the Federal Reserve and its chairman, Alan Greenspan, rose along with faith in the US economy, the dollar, and its stock market. During the nine quarters following March 2000, however, the US economy fell into its first recession in ten years; the annualized rate of real economic growth during those nine quarters was only 1.4 percent. Real stock prices fell at a 21 percent compounded annual rate, wiping away about $4.9 trillion of paper wealth ($5.2 trillion after inflation adjustment). Corporate profitability and business investment – especially in high technology and telecommunications – collapsed. Bankruptcy and bond default rates increased as the huge debt loads taken on by optimistic entrepreneurs and established firms alike became crushing burdens unsupportable by dwindling revenues. Corporate-governance scandals threatened to undermine the prestige of the American financial system. Meanwhile, federal government budget deficits re-emerged as tax revenues plunged and spending commitments – especially relating...
You are not authenticated to view the full text of this chapter or article.
Elgaronline requires a subscription or purchase to access the full text of books or journals. Please login through your library system or with your personal username and password on the homepage.
Non-subscribers can freely search the site, view abstracts/ extracts and download selected front matter and introductory chapters for personal use.
Your library may not have purchased all subject areas. If you are authenticated and think you should have access to this title, please contact your librarian.