Hi John, GV, and Tony, the Economist's article argues that the growth was due to an over investment scenario (which I would tend to agree with, see the RH article below).
The significant point is that this boom was different from past cycles (post 1945), because the boom phase was influenced by over-investments, not inflation induced by interest rates. Basically, too much money was in the system creating imbalances. So, this would mean the issue was money supply, not interest rates, right? (I'm not an economist, so please bear with me)
Tony, if you think Y2K's extra $30B was too much money, check these figures out:
Here's an article to give you an idea on the scale of investments:
-------------------
www.redherring.com
Lawrence Aragon
"The past few years have been beyond an aberration.
1994...$6 billion.
Annual capital commitments to U.S. venture funds soared from $17.9 billion in 1997, to $30 billion in 1998, then to $64.1 billion in 1999, and $82 billion last year, according to market researcher Venture Economics.
...
Venture Economics's research shows that until 1999, VCs as a whole never invested more than $10 billion a year. For most of the 1990s, they invested less than $2 billion a year. When you look at it that way, $40 billion is manna."
-------------------
From $2B to $82B.
Wow, that $82B makes Y2K look like a speed bump in comparison to what flooded the market.
Even though I'm an entrepreneur (and thus, benefit when capital is loose), I think AG should have done something to tighten up money, right?
Having said that (and unrelated to our startup), I think AG should be careful with what I'm currently hearing from my entrepreneurial friends about bankers. Mark my words, more layoffs are coming in high-tech.
My concern is that the interest rate switch won't work for the economy. I don't mind a short recession, but not a long drawn out recession as they fumble with the switches. I'm from the Internet age - pain should be quick and recovery should be fast.
Regards,
Amy J |
