The crash in technology-based equities resulted in a collapse in investment in the US and Europe and opened up significant excess capacity. "For the first time for many years the central banks of the big developed countries were faced with a prospect of deflation and capital inflows. They reacted strongly by cutting interest rates radically.
The US Federal Reserve, for example, slashed rates from 6.5 per cent (the New Zealand rate) in 2001 to only 1 per cent in 2003. (In New Zealand we were much more cautious, only cutting rates to 5 per cent.)