Government Response Timeline

June, April, January,

Federal Funds Rate NASDAQ Timeline 1995 1996 1999

933 1190 2,200

January, 1995 – 5.53 June, 1995 – 6 %

%
Increase in the tech firm-dominated Federal Funds rate was beginning
NASDAQ Composite was witnessed. to decrease.

September, 1994 – 4.73 April, 1996 – 5.22 %

% Coincided with a general
Federal Reserve was raising awareness of the powers of the
interest rates internet
 The Fall
Federal Funds rate was raised 6 times between June,1999 and May,2000 but The Fall was inevitable.

 NASDAQ fell from 3,966 in June, 2000 to 2,471 in December, 2000

 U.S. current account is a natural reflection of the major

macroeconomic event

 Between 1990 and the peak in mid- 2000, U.S. equity prices
increased nearly fivefold

 Growth rate of Equity Prices

• 1990 -1995 10.4 % per year

• 1995 - 2000 21.2 percent per year
 Actions Taken, Public Reaction and Repercussions
The Federal Reserve cut rates to one percent starting in

Repercussion
2001, adopting an Expansionary Policy. All the Americans, even uncreditworthy ones,
opted for adjustable-rate mortgages
Encouraged public to go for adjustable-rate mortgage loans,
..
saving tens of thousands.
This led to The US mortgage bubble crash in
Federal Government encouraged Banks to lend to
2008.
uncreditworthy individuals

More informed decisions were made with respect to making investments by the
people thereafter

Aftermat The dot com bubble, even though made a lot of tech companies close shops, but the
few who could take the hits are now the leaders of their sectors.
h
 The bubble burst led to a loss of a lot of invested money but all of that has now
contributed to provide the backbone of internet as we know today.
 Loopholes

Low to null government or federal intervention in regulating the stock prices of new internet
companies.

No readiness for the Y2K Bug in 1999 by the economies around the world, which indirectly
impacted deflation in the economy.

To counter this deflation, the Federal Reserve expanded the money supply at an annual rate of 22%
in 1999, there by people having more money to invest in internet companies without giving much
thought about their credentials.
 Viewpoints
 Its’s important to understand that Central bank cannot control the economy.

 Monetary Intervention ends up creating a boom and bust cycle.

 Once a boom occurs(tech bubble), a Bust happens when interest rates are raised (2001 downturn)

 Thus, until central bankers abandon the boom and bust cycle idea, things are not going to change— since
there is no "correct" rate hike or decrease.

 Investments should be encouraged only after proper due diligence of the industry and company.

 Investors should desist from investments based on unrealized potential in entities that are yet to prove
their cash flow generating ability and overall long-term sustainability.

 Credit Rating Agencies should contribute to ensure fair analysis.

 Road Map
Government
Introduction Root Cause Effects The Fall
Response

1 2 3 4 5

Actions Taken,
Public Reaction
Loopholes Viewpoints
and Repercussions

6 7 8