In the face of the risk of recession, monetary and fiscal policies were made expansionary. The saving rate continued to decline. Consumption was sustained by the rising value of property; households’ propensity to save turned negative in 2005. The federal budget balance deteriorated by 6 percentage points of GDP between 2000 and 2004 and will show another large deficit in 2006.
The manner of financing the external deficit also changed. The inflow of private capital slowed between 2002 and 2004. The dollar came under downward pressure, despite much larger purchases by the monetary authorities of countries with current account surpluses. Such purchases are liable to undergo rapid change. In 2005 these countries reduced their accumulation of official reserves, only China recording a further massive increase.