Who remembers the 80s?

10 posts / 0 new
Last post
mainemom
Offline
Last seen: 1 day 9 hours ago
Joined: 03/09/2004 - 1:01am
Who remembers the 80s?

In the 1980s, when Ronald Reagan was President of the United States, I graduated from college with an economics major, got a job with a big company, got married, left my job, and became a young mom.

We bought our first house before the real estate boom, then sold it and built a bigger one during the boom.

Ronald Reagan famously cut taxes, but at the same time, he was unable to get Congress to restrain spending. He insisted on increased spending for defense, which was very good for BIW, and Maine. To get that, he had to sign budgets with lots of pork added by Democrats. The deficit ballooned.

By the time we were getting ready to close on our new home, interest rates had climbed high enough to cool off the real estate boom. The lot we bought was originally under contract by another buyer, but they dropped out when they couldn't get an interest rate below 10. Yes 10.

Fortunately for us, we were selling two properties at the time and had a really big down payment. We had to borrow only a third of the value of the real estate, and we were able to get an interest rate of 8.25%, yielding affordable monthly payments.

To this day, I associate the combination of tax cuts and spending hikes with spiraling interest rates. At this point in my life, I am a saver, not a borrower, so high interest rates might help my personal finances. But for the vast majority of Americans, that is not the case.

This article by Robert Tracinski speaks to my unease over what's happening with the federal budget.
I can only hope that McConnell, Ryan and company have a wicked smart strategy for using their majority to pass some legislation to undo some of the harm that's being done.

Now, like Sisyphus, just as they were about to reach their goal, Republicans have let it slip out of their hands and roll back to the default state of bipartisan support for Big Government.

Tracinski also criticizes the Republicans who are promoting or embracing the idea of a new paid family leave benefit, to be funded through the Social Security system. He's right: this is Big Government all over again. Even if it were true that people taking the leave would be just using their own money (it isn't true: every cent workers and employers pay in to SS is immediately transferred to current retirees), no one mentions the burden on employers who may have to hire someone to do the work not being done by the worker on leave. If they want to do that, yippee, let them. If they can't afford to do it, they shouldn't be forced to.

Tom C
Offline
Last seen: 2 hours 27 min ago
Joined: 01/03/2006 - 6:00pm
Ugh. I bought a house at the

Ugh. I bought a house at the top of the market in the eighties, my interest rate was 10.5% , and when I sold it I walked away with what was about half of my original down payment. (Same with my second house, but I was able to refi that, and although I sold it at a healthy loss, I walked away with a chunk of change because I had been able to pay the mortgage down. BOUGHT my most recent house at the bottom of the market, and it's worth about 40% more than I paid for it a few years ago.)

Also, in the eighties, I had glasses kind of like this - although mine were bigger and uglier:

Anyway, politician's power comes from handing out money. Republicans talk up the red meat, but when push comes to shove, they make sure the people they have cocktails with get a big piece of the pie.

johnw
Offline
Last seen: 1 month 1 week ago
Joined: 03/11/2009 - 10:06am
In the early eighties I was

In the early eighties I was attending Brown University...That’s Brown Paper CompanyUniveristyon the Androscoggin......owned a couple of skidders and was jockeying a chain saw ...........I remember high interest rates ,shitty prices for pulp and logs..... and a lot of damn cold winter.weather......

Mike G
Offline
Last seen: 12 hours 43 min ago
Joined: 02/17/2000 - 1:01am
Well it certainly has helped

Well it certainly has helped that we all got a big boost out of the Greenspan credit card after 87, we been living it easy for decades, cheap money, cheap consumer goods, some still got a working paycheck. Most importantly we have gotten to the point where 95 million Americans are not in the work force, Now that is a liberation that needs to be applauded, I'm so proud to have contributed to that effort. I haven't gotten into that demographic because I love my job so much, but thank god we are able to support 95 million people who contribute to the economy by just strict consumerism. Its almost a living wage and I can't wait for the millennials to pay my way, you go girls.

Started in before the 80s but never did it falter through now.

Remembered the Whole Life Policies? guaranteed you would be a millionaire by the time you retired. this was under Volkner, I believe, what could you get 18.5 %? , can't recall all evaporated in the 90's with Greenspan etc now you must play the casino, the stocks .

anonymous_coward
Offline
Last seen: 19 hours 37 min ago
Joined: 10/21/2016 - 12:18pm
@mainemom:

@mainemom:

If I recall correctly (Economike please correct me if I'm wrong here), but it was the interest rates that went up first, by Volcker, in an attempt to crush inflation caused by rampant Nixon spending.

The fiscal stimulus (increased defense spending + tax cuts) came after, and probably would have happened regardless, since that's what Reagan was all about.

So, while the two happened at the same time, they were not causal.

Economike
Offline
Last seen: 3 hours 2 min ago
Joined: 11/28/2006 - 9:09am
For what little it's worth,

For what little it's worth, here's my recollection.

The stagflation of the 'seventies was a combination of rising inflation and interest rates. As most know, the nominal interest rate is (first approximation) the inflation rate plus the real interest rate. One way of understanding stagflation is to think of it as an accelerating debt crisis: inflation rises, credit-worthiness (including sovereign debt) declines, real interest rates rise, repeat.

Paul Volcker set out to curb inflation in late 1979 by targeting (restricting) the money supply and letting interest rates float upward. From the outset, Reagan understood and fully approved of Volcker's actions. Believing he had succeeded, Volcker ended his deflationary policy in 1982. Remember that inflation is, in effect, a tax. Reagan's policies couldn't have been implemented without Volcker.

The success of Reagan's supply-side policies has little to do with "fiscal stimulus," a demand-side concept thoroughly discredited in the stagflation years. As Wrong-Way Corrigan remarked, "We are all Keynesians now."

By the way, I think it's misleading to think of the Fed as setting interest rates. The Fed can influence short term rates temporarily, but ultimately interest rates are market-driven.

Throughout the 'eighties, real interest rates declined as high-interest debts came to term.

Roger S
Offline
Last seen: 2 months 6 days ago
Joined: 11/13/2003 - 1:01am
I saw a rather concerning bit

I saw a rather concerning bit of info the other day. In 2007 the national debt was about $9 trillion. Interest being paid on the debt stood at 4.75% so servicing the debt cost about $424 billion/year. Today the debt is about $20.5 trillion and the interest is down to 2.25% for a cost of about $460 billion/year. If there is a spike in interest rates it will blow a hole in the budget and likely constrain economic growth.

anonymous_coward
Offline
Last seen: 19 hours 37 min ago
Joined: 10/21/2016 - 12:18pm
I saw a rather concerning bit

I saw a rather concerning bit of info the other day. In 2007 the national debt was about $9 trillion. Interest being paid on the debt stood at 4.75% so servicing the debt cost about $424 billion/year. Today the debt is about $20.5 trillion and the interest is down to 2.25% for a cost of about $460 billion/year. If there is a spike in interest rates it will blow a hole in the budget and likely constrain economic growth.

Pretty much. Though I'm sure we'll all be fiscally conservative when we get there, right? Won't the swamp be drained by then? Wait, were we draining the swamp, or filling it up, I can't remember?

anonymous_coward
Offline
Last seen: 19 hours 37 min ago
Joined: 10/21/2016 - 12:18pm
By the way, I think it's

By the way, I think it's misleading to think of the Fed as setting interest rates. The Fed can influence short term rates temporarily, but ultimately interest rates are market-driven.

Sure, but from a de facto point of view, the Fed wields a lot of clout over the markets. It's rare (but not unprecedented) when the markets go off and do their own thing. I guess the inverted yield curves of 2006ish (?) would be a good example of that.

(Speaking of which, it sounds like we're due for an inverted yield curve this coming year? Good times.)

Economike
Offline
Last seen: 3 hours 2 min ago
Joined: 11/28/2006 - 9:09am
Interest being paid on the

Interest being paid on the debt stood at 4.75% so servicing the debt cost about $424 billion/year. Today the debt is about $20.5 trillion and the interest is down to 2.25% for a cost of about $460 billion/year. If there is a spike in interest rates it will blow a hole in the budget and likely constrain economic growth.

Heh. It seems like only yesterday everyone was worried about a sovereign debt crisis. Greece was broke, Italy and Spain would soon follow, the Euro was about to fail. Oh, I almost forgot, Detroit and Puerto Rico.

Eerily quiet, isn't it?

I suppose I should be posting this on anon's "fiscal conservatism" thread.

The unfunded prospective liabilities of the United States government will not and cannot be paid with future tax receipts. It follows that the net present value of those liabilities will be shrunk sometime before they come due. This is the critical political issue of our time; I don't think it much exaggeration to describe our current political divide as a cold civil war.

Log in to post comments