The US economy was eant to rebound in 2002. Instead, disappointment abounds, writes Conor O'Clery.

In a video-tape of a party at Enron in 1997, executive Mr Jeff Skilling took part in a skit in which he boasted: "We're going to move from mark-to-market accounting to something I call HVF, or hypothetical future value accounting. If we do that, we can add a kazillion dollars to the bottom line."

Everybody laughed. Except it wasn't really a joke after all. The year 2002 started with the collapse of the giant Houston energy company because of its smoke and mirrors accounting.

And one of the abiding images of this year has been Mr Skilling and other Enron executives writhing in the hot seat before Congressional committees outraged over corporate fraud.

Other mammoth companies that had inflated their performances through "future value" and such-like shady accounting in the heady 1990s were soon collapsing like so many burst balloons. The most dramatic "poof" into oblivion was that of one of the "big five" accounting firms, Arthur Andersen, which simply disappeared along with its document-shredding machines.

Then came WorldCom, which robbed Enron of the title of "world's biggest bankruptcy", and Tyco, Adelphia and others. The confident corporate stride of the masters of the boom became the "perp" walk of the bust, with alleged perpetrators deliberately frog-marched in handcuffs for the TV cameras to show that the administration was doing something. They needed to.

Bush fundraisers like Enron's Kenneth "Kenny Boy" Lay were left with their millions while Enron pensioners were left bereft and furious.

It was so blatant that talk-show host Jay Leno had a field day: President Bush was calling for a doubling of punishment for corporate crime, he said. "That means they will slap you on both wrists."

Some high-flying Wall Street analysts, those who puffed air into the bubble by talking up tech stocks even as they plunged downward, were exposed as cynical drum-beaters for investment contracts.

It was a year too when the reputations of national icons were shredded, further eroding investor confidence, from housekeeping diva Ms Martha Stewart whose company stock subsided like a bad souffle under the weight of insider-dealing charges, to Mr Jack Welsh, the former GE boss, who became a poster boy for corporate greed when his perks were exposed in a nasty divorce.

Some solid company images took a dent too when AIB's "model" acquisition of a Maryland bank turned into the disaster of John Rusnak's lost $691,000.

By the end of the year it was estimated that corporate scandals had cost the United States $200 billion in lost investments, savings, jobs and pensions.

They had also helped bring about the departure of the chairman of the Securities and Exchange Commission, former "big five" accountancy lawyer Mr Harvey Pitt, who had been appointed by President George Bush (elected himself with the help of lavish funding from Mr Kenneth Lay) as a kinder, gentler supervisor of corporate America.

He departed in November after a series of ethical blunders. This began the unravelling of the Bush economic team. As the year drew to a close, Treasury Secretary Mr Paul O'Neill was unceremoniously told he was "resigning", along with White House economic adviser, Mr Larry Lindsey. The gaffe-prone officials were mainly architects of their own misfortune, but they were also fall guys for an economy that only "bumped along" as Bush put it.

The real trouble with Mr O'Neill, as far as the Bush White House was concerned, was that he had lost credibility on Wall Street and was not enthusiastic enough about Bush's tax-cutting plans.

The US President plans to introduce an economic stimulus package early in the new year. It will likely bring forward his $1.3 trillion 10-year tax reduction bill, lower tax on stock dividends, accelerate tax rate reductions and provide more tax breaks for business investment.

All this despite the deficit in the federal budget, which was $200 billion in surplus two years ago and may be $200 billion in deficit by the end of the coming year with defence and homeland security spending.

Reducing the tax investors' pay on their stock dividends has been a Republican goal for a long time and, now that the party controls both houses of Congress, it might well be achievable. The idea is to keep the consumers, who drive two-thirds of the economy, spending.

There are a few encouraging signs. The US's faith in the economy climbed in November to its highest level since the summer, according to the University of Michigan. But the index of consumer sentiment is "bumping along" near the nine-year low it recorded in October.

Unemployment in November reached an eight-year high of 6 per cent. Businesses are not investing nor are they thriving.

Thomson Financial First Call reported that of the 1,281 US corporations to offer profit forecasts for the last quarter of the year, only three out of 10 managed to improve on analyst expectations and 43 per cent under-performed.

Analysts forecast that the first quarter of 2003 will show earnings to be still depressed. On top of that the spectre of war and chaos in the Gulf - not to mention Venezuela - could have a major impact on oil prices and the burgeoning current account deficit has pushed the dollar steadily lower throughout 2002.

It was a terrible year for equities. By mid-December, the Dow Jones was down 12 per cent on the year. The tech-heavy Nasdaq was down 25 per cent. The S&P index of popularly traded shares fell for the third straight year - the first time this has happened in 60 years - and though it may rise next year, it is predicted to gain no more than 10 per cent.

The Federal Reserve kept short-term interest rates at a 40-year low of 1.25 per cent, achieved after 12 cuts in two years, but there seemed no sure way of sparking the world's biggest economy back to life as it worked its way through a lengthy readjustment after the boom of the late 1990s.

The World Bank predicts that the US economy will grow at 2.6 per cent next year, down from an earlier estimate of 3.1 per cent, which, if true - the World Bank often gets it badly wrong and a few US economists are more bullish - the US is in for another year of just "bumping along".

There is over-capacity in most industries, and manufacturers have been cutting prices to maintain sales momentum.

Economists at the year's end were talking about the risk of deflation again - the phenomenon of a cycle of falling prices that encourages consumers to hold off until prices fall even further. All in all a muddle-through year.

This was the year when the US economy was supposed to rebound. As someone said, with recoveries like this, who needs recessions?