Monday, June 09, 2008

A Longer View

One of the reasons we older folks aren't as excitable as the younger folks is we have a bit more experience from which we can form opinions and make judgements. I've had plenty of students who think that global warming is the biggest crisis ever to strike mankind; they are taken aback when I discuss all the apocalypses that were supposed to have struck so far in just my lifetime. Global warming? Color me skeptical.

It's fashionable lately for Lefties to talk about how bad the economy is--only when there's a Republican President, and whether the economy is bad or not, and especially if there's an election approaching--but here's a post with some longer term information. Keep in mind, the information in that post is still in a time frame shorter than my own lifetime. I found the following most interesting, especially since I lived through it and remember it:

The reason Volcker raised interest rates so aggressively was that inflation went wild in the late 1970s. For example, inflation hit 11.3% in 1979, 13.5% in 1980 and 10.3% in 1981 before Volcker’s harsh medicine began to kick in and inflation moderated to 6.2% in 1982. As inflation ratcheted higher, so did home mortgages rates.

Thirty-year fixed rate mortgages went up to nearly 13% in November 1979 and did not fall under 12% again until November 1985. The peak rate for mortgages was 18.45% in October 1981. 18.45%!

But, even though high interest rates began knocking down inflation, high rates also led to sharply higher unemployment. The unemployment rate peaked at 10.8% in December 1982. However, it had been soaring for years and it remained at 8% or higher until January of 1984.

When you hear politicians and pundits opine that this is the worst crisis since the Depression, just mentally compare current conditions to those of the late 1970s and early 1980s. We had double digit inflation, unemployment and home mortgage rates back then. Let’s see: inflation is around 4%, unemployment is 5.5% and 30-year fixed mortgages are about 6.25%. In other words, we are not remotely close to anything like double digits on any one of these factors, much less all three.

The difficulties we faced in the 1970s and 1980s were far more severe than anything we are seeing now and I am confident that the Fed and the U.S. Treasury will be able to deal with the much more moderate economic problems we are facing. We clearly have issues now, but they are not nearly as difficult as the issues we have successfully overcome in the past.

A longer view.


Ellen K said...

You may want to go to the links on my blog here:

Fritz J. said...

I well remember Pres. Carter and the runaway inflation that took place during his administration. The sad thing is that the current Democratic nominee reminds me much of Carter. Someone once said that stupid is doing the same thing over and over and expecting a different result.

Law and Order Teacher said...

If McCain is the third Bush term, laughable, in light of their well known love of each other, Obama is the second Carter term. Carter unleashed an economic tsunami on this country that took the decade of the 80s to clear up. Obama is merely advocating the same. We don't have time to talk about the foreign policy blunders Carter committed beginning with his Camp David accords, that did nothing to bring about peace in the Middle East and later cost Sadat his life.