Dwight Watt Internet Article #101

#101 ­ The recession ­ Bush’s, Clinton’s or who’s fault? (Watt Thoughts)

#101 ­ The recession ­ Bush’s, Clinton’s or who’s fault? (Watt Thoughts) 3/10/2004

Starting in 2000 and continuing for up to several years the United States went through a recession. Today we still feel effects from it with reduced employment in a number of fields and tax revenues for many governments down. However most indicators show the economy growing at high speeds, the unemployment rate down and the stock market in the past year growing at astounding rates (although the stock market has been in doldrums for the past month). Now that the United States is going through a national election we ar hearing all kinds of stories on whose fault is the recession and the lingering effects. We have heard it is all George Bush’s fault, that it is Bill Clinton’s fault. So what caused the recession?

George Bush has been blamed widely for the recession since much of the effects of it has fallen on us during the time he has been president. However can you really blame one person with the recession when it started before he became president and the stock markets starting crashing before his election also? However we expect him to take actions to stop the recession and it’s effects. He has taken actions he believes will lead to boom times again including tax cuts and shoring up our security and how safe we feel we are.

Bill Clinton receives blame from some for the recession as he was president when it began and when the stock market crashes began. However many do not blame him as they remember the rise of the stock markets under his watch. However the NYSE reached its high over one year before Clinton left office and its drastic fall from January 2000. (Remember Clinton was president until January 20, 2001). The NASDAQ reached its peak in March of 2000, four years ago, and began what cannot be defined as anything but a crash in falling from a high of over 5000 to a low of just over 700. In the last year it grew at extremely high rates and still is less that halfway back to its high in 2000.

I personally don’t think either one caused the recession or the major reasons we have been climbing out of it in the past year. An event that we should all still remember caused it and I have not really seen anyone place the blame in the right place. No I am not talking about 9/11 although that probably was a contributing factor to depths we went to. Neither am I talking about the tax polices or deficit policies of the US although I believe the tax cuts are helping get out faster and the surpluses probably delayed the impact for a time.

2000 was a landmark year in many ways. It was the end o a millennium as we entered a new millennium (actually entered new in January 2001) when you measure years as most of the western world does in terms of years since the year approximately when Jesus was born. Through the late 90’s leading up to 1/1/2000 many people who know nothing about computers came to learn that the programs that run computers had been written with a short cut that was to haunt us.

Y2K I believe is the reason for the booming economy under Clinton in his second term and the recession that followed. The various ones that played games with the market such as day traders, crooked CEOs etc had some effect, but appear to me to be more drops in the glass of water.

Traditionally computer equipment and related telecommunications and electronic equipment has often had an initial life of 3 years. Then it moved down or out of an organization but you had a new computer on your desk about every three years. The same went for the equipment running the networks and backbones of organizations.

When it became apparent the extent of the Y2K problem, organizations and individuals left the normal pattern of just replacing items (hardware, software) every three years, but moved to replace everything between 1998 and 1999 and no passing down, but all new for everyone. That in turn was wonderful for all the people and organizations in computers and information technology as there were demands and sales like never seen before (but will probably reoccur in the 2030s when the second part of Y2K problem hits). This meant sales, jobs, salaries etc. boomed. The stock market boomed as the expectation was these sales would stay high forever.

January 1, 2000 arrived and with very few glitches in 2000 because of this preparation. So we had seen the enemy (a little late and fuzzy by some) and beat the enemy by getting rid of every thing that had that Y2K code in it. Due to the large demands and the industry’s inability to meet it all by 1/1/2000 sales and demand stayed high for a few months as last orders were filled. Then calamity struck.

Remember the life cycle of computer equipment is basically 3 years. Remember also that everything was basically replaced in 1998 (mostly late) and 1999. Now we entered a 3 year period of where all the equipment was less than three years old. So all the stuff related to computers and information technology suddenly discovered there was no demand. The NASDAQ being heavily weighted to high tech stocks took the worse hit. Many IT companies folded under the weight of plans for growth like late 90s and no growth and actual reduction in sales.

When late 2003 arrived we actually started to have “old machines” again. However since organizations traditionally only replaced part of their equipment yearly, we have seen demand for high tech grow, but not to 1999 levels. Organizations will continue the replacement patterns from 80s and early 90s and we can expect growth again. However we will probably never see the late 90s spurt again unless it appears with the 2030s problem.

So the recession should not be labeled a Clinton or Bush recession but it should really be a Y2K recession. If you look at when NASDAQ began climb it really fits and the doldrums today are probably from people that thought the dot com 90s were back and went to high to fast. I fully expect us to settle in a growing but rational market and economy over this


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