Term Paper: U.S. Debt Crisis Financial

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[. . .] (Dot-com) In consequence of Dot com Bubble collapse during the year 2000 that the concerns for capital funding in respect of various types of technology and Internet companies demonstrated significant reduction. As a result of crushing of investors in the 'margin call' squeeze by the brokerage houses following bubble collapse a huge amount of capital funding suffered losses. (The Dot Com Bubble Collapse of the Year) The deflationary trend was at its peak during 2001. It forced a majority of the dot-coms to stop trading after experiencing losses through their venture capital often even without making a gross profit and becoming dot-compost. Many of the companies related to the dot-com boom are being accused of or convicted of fraud. Several causes were forwarded with regard to the bubble burst. The first one was the six interest rate increases made by the Federal Reserve in 1999 and early 2000 finally catching up with the economy. (Dot-com)

The other reason was rapidly accelerated business expenditure in their preparation for the shift to Y2K. The boom on dot-com resulted in other economic problems on the basis of the theory of the dot-coms and the reachability to broadband that was expected to follow in its wake. Most of the people predicted that the quantity of the fiber optic and copper cable required to cater to the growing network traffic would go up multiply as a result of the continuing explosive growth of the dot coms. The investors had great expectations of their being involvement in the network traffic explosion sooner. Most of these networking companies faced difficulties before and after the bubble burst as a result of their debt burden and the downfall in the subscribers for the network. Some of them additionally were accused of being accounting scandals for showing them the illusion of making profits especially in periods actually when they were not. This compelled most of them to declare Chapter 11 or Chapter 7 bankruptcy. (Dot-com)

Moreover the telecom bubble is observed to be the result of the easy money. Competition was infused with the introduction of the Telecom Act of 1996 and the Internet and other new applications were fuelled intensively. This led everyone to predict that the telecom growth would continue forever. The words 'telecom' or 'optical' lured many venture capitalists, banks and the markets as a result of which money continued to flow into the hands of the industrialists. The Wall Street analysts formed financial models out of the growth trend so as to predict that these would grow like wildfire into the eternity. However, in the year 2000 with the easy provision of capital the telecom sector becomes fully constructed. The growth in the network capacity, and inventories produced by the equipment vendors, component suppliers and contract manufacturers were considered more than enough. (Housing May Mirror Telecom Boom and Bust)

Having such wide availability of capacity as well as equipments prices of the products crashed down. In order to continue the growth of sales the vendors are compelled to provide easy financing to the telecom service providers. (Housing May Mirror Telecom Boom and Bust) The analysts however, regarded the 'Dot Com Era' as the first phase of the Internet Revolution and predicted that several technological developments are still to come along in the broader Information Age Revolution. Some of the industrial observers pointed out this as a cyclical adjustment and not a secular trend in the market. Some analysts pointed out that the 'New Economy' has not been crashed despite collapse of the telecom and the dot-com bubbles. They anticipated the scope of engineering and strengthening of the economic and financial conditions of the new era. (The Dot Com Bubble Collapse of the Year)

Decline in equity market valuation as a consequence of the extended bear market and the accompanying decline in the value of real assets (plant, equipment, office buildings)

The bull market in the 1920's was very similar to the financial market of the present day. U.S. always stood apart from the rest of the world as a veritable powerhouse. European economies, in order to reduce the strain, began to siphon gold into the U.S., and the accommodative monetary policy of the U.S.A. made it easier to liquidate assets, and this excessive amount of liquidity affected both the economy as well as the stock market. The consequence was that the U.S. began to emerge as a growth machine with great advances in technology and productivity. Stocks had reached a plateau level at this time and soon stock value began to plummet; a loss of over 87% of value was seen in those few years. The book 'American Challenge' that was written about the economic crash and the debt situation of the 1950's to 60's bull market stated that American multinationals enjoyed an unfair advantage over the rest of Europe and that this had to be stopped in its tracks very soon. As predicted the American stock market happened to peak in 1966, after which there began a steady decline, until the 1970's. Imports of automobiles and electronics were making an influx and the technologically inferior American products, especially the real assets like equipment and office buildings began to suffer as a result. (Is a Bear Lurking Behind the Goldilocks Stock Market?)

Terrorist attacks of September 11, 2001

The September 11, 2001 attacks of the terrorism in United States were at a time when U.S. was undergoing serious economic upsets. Ever since the beginning of the 2000 the U.S. economy is observed to have been consistently moving towards a recession, to be more particular to a stage of deep recession even without the event of September, 11. This is not considered downturn of the business cycle but demonstrated the conditions that resulted in the boom of 80s and still greater boom of 90s. Even prior to the September, 11 incidents the policy makers of U.S. Capitalism were started struggling with the serious strategic concerns that had developed. The continuation of a relatively high level of consumer spending that was beginning to be eroded by the growth and employment particularly in the manufacturing sector, was considered to be the only solace that hold back the economy from a sharp slump. (World economy: The economic aftermath)

Irrespective of the fall on the stock exchange ever since the crash of the technology stocks in March 2000, the shares remained overrated in relation to the company profits that had been radically falling. Further sharp fall were evident even without the imprudent reactions to the attacks on New York and Washington. Ever since the period from 1929-31 the attacks were considered to have greatest influence over the economy in form of falls on stock exchanges around the world. These falls were to eradicate a large share known as 'wealth effect', that was the inclination of the investors to invest more and the consumers to spend more as a result of the growth of their financial assets. To mitigate the crisis, the attempt of the Federal Reserve was to immediately infuse $38 billion of liquidity and the Bank of Japan, the European Central Bank, the Bank of England, etc. had also similar efforts. This immediately checked an immediate economic collapse that could have resulted from the gradual reactions of failure in payments as a result of suspension of trading in New York and crisis in cash flow for many finance houses. (World economy: The economic aftermath)

The quickest response was observed for the sector of airlines that confronted devastating losses and bankruptcy. The devastations caused by September, 11 have made the major insurance companies to suffer from huge losses. The post attack period witnessed immediate increase in the crude oil price by more than $3.50 per barrel. Irrespective of the symbols of growing recession for many months prior to September, 11, 2001, the serious concern for the economic situation was not taken by many sections of the U.S. citizens. The advantages of the recent wage increases were continuing to have gradual impact while the inflation and interest rates were very low. The sufferings of the workers were limited to their unemployment. Some financial experts were become cold solace to their clients by telling that the wars were often good enough for the business. It was quite evident to observe that the opening of the New York Stock Exchange [END OF PREVIEW]

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