In an attempt to end the recession caused by the dot com bust the Federal Reserve kept interest rate arbitrarily low (1%) for about one year this caused an unprecedented increase in spending and consumption primarily in America. It also created excess demand for commodities, food etc. So much that oil was about $147 per barrel before the global economy came down to earth.
Submitted by Anonymous on Mon, 01/11/2010 - 4:14pm
why we are in a global recession and how it will affect Africa
In an attempt to end the recession caused by the dot com bust the Federal Reserve, in 2003, kept interest rates unreasonably low (at 1%) for one year. This caused bankers/lenders to be frivolous in giving out credit and consumers to abuse it. The cost of borrowing money was so cheap that bankers were in a hurry to get the money out the door. Consumers were borrowing and spending beyond their means and on the fiscal side, government was subsidizing the housing market. This led to a massive expansion in the housing market, excessive demand and asset price inflation amongst others.