Part 2--The Beginning Of The Housing Bubble

24/03/2001                                  21/04/2001                               30/03/2002

Following the collapse of the dot com bubble , the American and world economy experienced a significant slow down. For example, $10 trillion was wiped off global share values from 2000 to 2001, the net worth of American households fell in 2000 for the first time since records began 55 years ago and America's corporate sector suffered its deepest recession since the 1930s

Moreover, the Japanese economy, the second biggest economy in the world at time was on the verge of re-entering a recessionary and deflationary period.

This economic situation was destabilized further by the September 11th terrorist attacks.

In order to avoid a deep recession and to stimulate economic growth in light of these events, Alan Greenspan, chairman of the federal reserve cut interest rates from 6.5 % in November 2000 to 1.75% in July 2002.

These reductions allowed credit to become cheap and easy to obtain. For example, in 2003, there was wide spread promotion of mortgages with low introductionary rates. All this cheap money filtered into other sectors of the American economy and allowed consumers to go shopping once more.

Perhaps, the economist magazine put it best when it wrote of these interest rates reductions " as one bubble burst, another started to inflate. "