By Kashan Wali, exclusive to the PTH
As the United States economy took off for most of the 1990s, the new found wealth across the world was staring at the best of both worlds; high economic output due to technological advances, cheaper labour entrance into the global economy from India and China, entrance of Eastern Europe and Latin America in the democratic capitalist system, all combined with a lower inflation. What could go wrong?
In some ways, the situation was similar to the roaring 1920s of the United States. 90 years ago, the US economy was expanding rapidly. New technological advances in automobile and telephone technology were erasing geographical distances within and outside of the United States. Rising productivity was increasing wealth and the signs of prosperity were evident in the stock market and the housing market.
The stock markets in the United States took off for most of the 1990s. Most of the rise was understandable; internet was revolutionising the distribution of knowledge. And modern economy is a knowledge based economy, not the traditional manufacturing based economy of the 20th century. Technology is a self perpetuating phenomenon. It builds on a wider base and increases exponentially. The equity market future expectations of higher revenue in the future due to higher revenues and profits down the road were probably justified.