By Nixon Carruthers
In 1999 the so called "technology bubble" burst and two years of staggering inflation came to an end. The modest investment by our government to market the new technological super-highway with the promise of lower costs and higher margins, attracted a massive amount of private sector money.

How could so many people be duped into thinking the new online way of doing business would create increased profits with no infrastructure to utilize it? The good news was the private sector paid for it and the infrastructure has, but recently, been paved. What does this have to do with the economic turmoil during the past two and a half years?

By retracing events beyond the "technology bubble" burst of late 1999. A recession was looming and money was evaporating in tandem with the falling stock market . Also the government had a balanced budget though the tax revenues from capital gains, low unemployment and robust retail sales during the tech boom were shrinking. Going forward the government finds itself in a fiscal challenge to maintain a balanced budget while anticipating lower tax revenue and the same or increased spending.

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The tech bubble burst involved a multitude of newly formed companies folding within months. The companies had no way to perform. The promise of technology based companies needed more time and money than investors could bear. For example: A new tech based company would claim they could make, sell, manufacture and market dog food better than the existing company that had been doing it for 100 years. The new company had no practical knowledge of the product. The disappearance of tech-based companies left a massive vacancy in commercial rental space and an increase in unemployment. Those problems would have to be dealt with by the new administration taking government in 2001.

This proved to be be the perfect time for a shrewd, maniacal, anti free world, aspiring world ruler to take advantage of our vulnerability. A new administration very slow to form during a time of economic downturn must have added to the timing. Osama bin Laden's plan, to destroy the free world economy, comes into fruition. It was well executed and a well thought out plan that indeed worked. The result of the 2001 9/11 catastrophe was the destruction of our economy. The wheels stopped turning, money stopped flowing and capitalism fell. Fear stopped any hope of a fast recovery and loses mounted and spread throughout the free world. How could our economy collapse without causing havoc and a massive depression greater than any known? What did we do to offset the impact of the lost revenue?

We pumped money back into the economy through a vehicle that would keep goods and services moving. Real Estate was the vehicle. By coincidence, the mortgage industry was deregulated in a way that gave almost everyone over 18 access to money through the purchase or refinance of real estate across the country. We lowered interest rates enough to make the purchase and refinance of real estate a "no brainer".

Multitudes of people lined up at the banks and mortgage brokers to get their piece of the pie and in no time money was flowing again. High paying jobs sprung up throughout the financial industry, restaurants and hotels began to fill and the service industry thrived once more. The economic recovery happened so fast that most people throughout the country with exception to New York City and those that lost friends and loved ones did not feel the 911 financial impact at all. The airline industry was not so quick to react due to fear. Tourists from around the world took advantage of our weak dollar to buy our goods and enjoy the USA. Sounds like a real American success story! But not so fast.

Short term success yes but the threat of inflation was overwhelming for our Treasury Secretary, Mr. Greenspan. During 2005 his speeches warned of inflation. He begn raising interest rates higher at a very fast pace to curb inflationary pressure. Many would debate that oil was behind the rising prices and in fact deflation, due to the technology boom of the late 90's, was taking hold. The costs of sales and productivity of the workforce was at an all time high. Oil and other raw materials were going up and seemed to be a natural force against inflation, not a cause. Housing prices and building starts were going up at a remarkable rate with the new found demand. The American dream seemed to be within reach for all who shared it.

The dream began to slip away when interest rates went up too high, too fast, turning off the flow of money completely. Then no action followed lowering interest down enough to stabilize the markets. We created a disaster. Everything done to get our economy running smoothly during a time of crisis was destroyed. All investments that were made were in vein. Portfolios made, bought and sold were worthless. Most believed they had bought into a new economy where there was equal opportunity, until the rug was pulled out from under. Why didn't we stabilize the economy by raising interest rates in a more measured pace? Why didn't we start regulating the finance industry changing the guidelines in an orderly fashion to regain standards for investors.

Many of us blame the actions of the patrons who took advantage, borrowing and spending money. Wasn't that the intention? Push money into the market so the economy could house and feed us during a time of crisis. It is true that not everyone can be responsible and make all correct decisions but one would rather have an opportunity and fail than to never have had the opportunity. Most of the repercussion hit in early 2007 when investors realized the rental properties they owned with little of their own money would not qualify for refinance. In addition higher interest rates would keep housing from gaining value in the foreseeable future. The only choice the novice investor had, with nothing to gain and a mounting negative cash flow, was to walk away. We all know the ripple effect to follow the housing inventory left behind. We destroyed our finance market and then our investment market which led to the downturn of our economy and the rest of the free world.

We can only speculate as to why our Treasury Department did not do a better job of stabilizing the economy without having to first destroy it. The application of technology and the extremely low interest rates sped the formation and expansion of businesses into the new world economy. The rapid expansion and growth of our Gross National and Domestic Product has made it possible for the US and the world to absorb the trillions of dollars lost by the delayed depression of 2001. We are currently paying for that loss right now and when all the countries of the free world get their currencies back in balance we could be on track for a long and sustainable growth period. If we had not delayed the effects of the 2001 depression, it could have been a disaster beyond our wildest imagination. (Nixon Carruthers is a real estate consultant based in California, Nixoncarruthers.com) Courtesy: PRLog