The early 1980s recession was a severe global economic recession that affected many developed countries in the late 1970s and early 1980s. The United States and Japan out of recession are relatively early, but high unemployment rates will continue to affect other OECD countries until at least 1985.
The long-term effects of the recession contributed to the Latin American debt crisis, the saving crisis and US borrowing, and the general adoption of neoliberal economic policies throughout the 1980s and 1990s.
Video Early 1980s recession
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In the early 1980s, Canada experienced inflation, interest rates, and underemployment higher than the United States. The Bank of Canada rate reached 21% in August 1981, and the average inflation rate was over 12%. The inflation period makes Canada try to protect themselves by investing in the housing market.
Some see profits for high interest rates with speculation in real estate and other assets. Increased transactions are financed by loans and ultimately lead to increased debt levels.
Canadian firms, preoccupied with prospective investment opportunities due to high inflation, are no longer focused on innovation and increased productivity. In addition, high inflation is partly responsible for greater government spending. The overall tax burden increased from 27% of revenues in 1951 to 34% in 1969 and 37% in 1988. From 1975 to 1992 the national deficit more than tripled to 8% of GDP. The high interest rates generated cause more Canadian income to be paid to foreign holders of Canadian public and private sector debt.
Canada is changing from a country that produces and exports mainly primary products to one producing and exporting more manufactured goods. Jobs lost out in mechanization in the industry. In addition, globalization means that Canadian companies must reduce their workforce to stay efficient and compete internationally. In the early 1980s, Canada's unemployment rate reached 12%. It took nearly four years for the full amount of work to recover. Productivity slowdown also emerged during the recession. Real GDP declined by 5% between June 1981 and December 1982, and the average output per worker slowed to 1%. The US decision to move to a floating exchange rate devalued the Canadian dollar, which was worth US $ 0.85 in 1979, which made US imports more expensive. On the other hand, Canada's major exports have fallen in price. Combined with inflation and high interest rates, high commodity prices reduce living standards.
Maps Early 1980s recession
United Kingdom
Economic impact
Like most other developed countries, the recession hit Britain in the early 1980s. It follows a series of crises that have plagued the British economy for much of the 1970s. As a result, unemployment has increased gradually since the mid-1960s.
When the Conservative Party, led by Margaret Thatcher won the May 1979 election, and swept James Callaghan's Labor Party from power, the country has just witnessed a Winter of Dissatisfaction in which many public sector workers have struck. Inflation was around 10% and about 1.5 million people were unemployed, compared to about 1 million in 1974, 580,000 in 1970 and just over 300,000 in 1964. Thatcher set about controlling inflation with monetarist policies and changing trade union legislation in an effort to reduce public sector workers' strikes.
Thatcher's fight against inflation raises the exchange rate, resulting in the closure of many factories, shipyards and coal holes due to cheaper imports. Inflation fell below 10% at the turn of 1982, having peaked at 22% in 1980, and in the spring of 1983, falling to a 15-year low of 4%. The strike was also at its lowest level since the early 1950s, and wage growth rose to 3.8% in 1983.
However, unemployment reached 3 million, or 12.5% ​​of the workforce, in January 1982, a level not seen for about 50 years. The unemployment rate will remain equally high for several years thereafter. Northern Ireland is the hardest hit region, with the unemployment rate reaching almost 20%. That number exceeds 15% in most of Scotland and Northern England. In April 1983, Britain, once known globally as the "world workshop" became a net importer of goods for the first time in modern times. The Tyneside, Yorkshire, Merseyside, South Wales, Western Scots and West Midlands areas were hard hit by the loss of industry and the sharp rise in unemployment. Only in Southeast England, unemployment remains below 10%.
Despite the economic recovery that followed the recession of the early 1980s, unemployment in the UK hardly declined until the second half of the decade. By the end of 1986, unemployment exceeded 3 million, but fell below that figure the following year. By the end of 1989, the number had dropped to 1.6 million.
Social impact
Mass unemployment and social discontent resulting from the recession were widely seen as a major factor in the widespread unrest throughout Britain in 1981 in parts of cities and cities including Toxteth, Liverpool, as well as a number of districts in London. By 1985, the economy had been out of recession for three years, but the unemployment rate remained high. Another wave of unrest occurred in many parts of Britain, including some areas of London. Poor job opportunity, and social discontent are once again seen as a factor in the unrest.
Political impact
In Thatcher's first three years of prime ministerial polls, polls ranked government approvals as low as 25%, with polls originally led by the Labor opposition and then by the Liberal-Liberal SDP, the latter formed by the Liberal Party and the Social Democratic Party in 1981. However, the economic recovery, combined with the Falklands War, led to Thatcher's Conservative Party winning 42.4% of the vote for a parliamentary majority in elections in 1983.
United States
The early 1980s recession in the United States began in July 1981 and ended in November 1982. One of the reasons was the Federal Reserve's contractionary monetary policy, which sought to control high inflation. In the midst of the 1973 oil crisis and the 1979 energy crisis, stagflation began to hit the economy.
Unemployment
Unemployment has increased from 5.1% in January 1974 to a 9.0% high in May 1975. Although gradually decreased to 5.6% in May 1979, unemployment began to rise again. This jumped sharply to 6.9% in April 1980 and 7.5% in May 1980. A mild recession from January to July 1980 left unemployment high, but despite the economic recovery, it remained at historically high levels (about 7.5%) to late 1981 In mid-1982, Rockford, Illinois, had the highest unemployment rate in all metro areas, which was 25%. In September 1982, Michigan led the nation with 14.5%, Alabama second with 14.3%, and West Virginia third with 14.0%. The Youngstown-Warren Metropolitan Area has an 18.7% rate, the highest of all metro areas, and Stamford, Connecticut, has the lowest unemployment, at 3.5%.
The peak of the recession occurred in November and December 1982, when the national unemployment rate was 10.8%, the highest since the Great Depression. By 2015, it is still the highest since the 1930s. In November, West Virginia and Michigan had the highest unemployment with 16.4%, Alabama was third with 15.3%. South Dakota has the lowest unemployment rate in the country, with 5.6%. Flint, Michigan, has the highest unemployment rate in all metro areas, with 23.4%. In March 1983, West Virginia's unemployment rate reached 20.1%. In the spring of 1983, thirty countries had double digit unemployment. When Reagan was re-elected in 1984, the last unemployment rate (August 1984) showed that West Virginia still had the highest rate in the country (13.6%) followed by Mississippi (11.1%) and Alabama (10.9%).
Inflation
Inflation, which averages 3.2% every year since World War II has doubled after the 1973 oil shock, to an annual 7.7% rate. Inflation reached 9.1% in 1975, the highest level since 1947. Inflation declined to 5.8% in the following year but then rose slightly. In 1979, inflation reached a staggering 11.3% and in 1980, it jumped to 13.5%.
A brief recession occurred in 1980. Several major industries, including housing, steel manufacturing and automobiles, declined from where they did not recover until the end of the next recession. Many economic sectors supplying basic industries were also hit hard.
Each period of high unemployment is caused by the Federal Reserve, as it substantially increases interest rates to reduce high inflation. Every time, once inflation falls and interest rates are lowered, unemployment slowly falls.
Determined to extort inflation from the economy, Federal Reserve Chairman Paul Volcker slowed the rate of growth in money supply and raised interest rates. The federal funds rate, which was about 11% in 1979, rose to 20% in June 1981. The main interest rate, an important economic size, finally reached 21.5% in June 1982.
Financial industry crisis
The recession has a severe effect on financial institutions such as savings and loans and banks.
Bank
The recession came at a very bad time for banks because of the recent wave of deregulation. Deregulation of the Depository and Monetary Control Act of 1980 has suspended some restrictions on their financial practices, extending their borrowing power, and raising the deposit insurance limit from $ 40,000 to $ 100,000, leading to moral hazards. Banks rushed into real estate lending, speculative loans, and other ventures as the economy deteriorated.
In mid-1982, the number of bank failures continued to rise. Bank failures reached 42, the highest since depression, as recession and high interest rates took their toll. By the end of the year, the Federal Deposit Insurance Corporation (FDIC) has spent $ 870 million to buy bad debts in an effort to keep the banks on hold.
In July 1982, the US Congress passed Garn-St. Germain Depository Institutions Act of 1982, which further deregulated the banks and deregulated savings and loans. The law allows banks to start offering money market accounts in an effort to encourage inflow of deposits, and also remove additional legal restrictions in real estate loans and relaxed loan-to-one-loan limits. It encourages rapid expansion in real estate lending while real estate markets collapse, increasing unhealthy competition between banks and savings and loans, and encouraging too many branches to begin.
The recession affected the banking industry long after the economic downturn was technically over, in November 1982. In 1983, 50 other banks failed. FDIC enrolled 540 other banks as "problem banks", on the verge of failure.
In 1984, Continental Illinois National Bank and Trust Company, the seventh largest state bank (with $ 45 billion in assets), failed. FDIC has long known the problems. The bank first came close to failure in July 1982, when Penn Square Bank, which partnered with Continental Illinois in high-risk lending companies, fell. However, federal regulators are reassured by Continental Illinois executives that steps are taken to ensure bank financial security. After its collapse, federal regulators are willing to let banks fail to reduce moral hazard and other banks will control some of the more risky loan practices. Members of Congress and the press, however, felt that Continental Illinois was "too big to fail". In May 1984, federal banking regulators finally offered a $ 4.5 billion rescue package to Continental Illinois.
Continental Illinois itself may not be too big to fail, but its collapse could lead to the failure of some of the largest banks. The American banking system has been significantly attenuated by a severe recession and deregulation effect. Had other banks been forced to repay loans to Continental Illinois, institutions such as Hanover Manufacturing Company, Bank of America, and perhaps Citicorp would be bankrupt.
Crisis savings and loans
The recession also significantly worsened the savings and loan crises.
In 1980, there were about 4590 state and federal savings and lending institutions (S & Ls), with total assets of $ 616 billion. From 1979, they began to lose money because of the spiraling interest rates. S & amp; net revenue L, which had reached $ 781 million in 1980, fell to a loss of $ 4.6 billion in 1981 and a $ 4.1 billion loss in 1982. The real net worth for the entire S & P industry is almost zero.
Federal Home Loan Bank Board (FHLBB) organizes and checks S & amp; Ls and manages Federal Savings and Loan Insurance Corporation (FSLIC), which insures deposits in S & amp; Ls. FHLBB enforcement practices are significantly weaker than other federal banking institutions. Until the 1980s, savings and loans had limited lending power so that FHLBB was a relatively small agency, overseeing a calm and stable industry. Not surprisingly, FHLBB procedures and staff are inadequate to monitor S & amp; L after deregulation. In addition, FHLBB can not increase its staff due to strict limits on the number of hired personnel and the level of compensation that can be offered. Limitations are placed on agents by the Office of Management and Budget and are routinely subject to the political behavior of the agency and the political appointees of the President's Executive Office. In finance circles, FHLBB and FSLIC are called "financial regulatory balances."
Because of its weak enforcement forces, FHLBB and FSLIC seldom force S & amp; to improve poor financial practices. The FHLBB relies heavily on persuasive forces and US states to enforce banking regulations. With only five law enforcement lawyers, FHLBB will be in a bad position to enforce the law, even if they want it.
One consequence of FHLBB's lack of enforcement capability is the promotion of deregulation and aggression, the extension of loans to prevent bankruptcy. In November 1980, FHLBB lowered the net asset value for S & amps insured by the federal government from 5% savings to 4%. FHLBB lowered the net value requirement again to 3% in January 1982. In addition, the agency required S & P to meet these requirements for only 20 years. The rule means that S & amp; Ls less than 20 years practically have no capital reserve requirement. It encourages many S & amp; L as a result of a $ 2 million investment could be raised to $ 1.3 billion in loans.
Congress deregulation worsens crisis S & amp; L. The 1981 Economic Recovery Tax Act caused an explosion in commercial real estate. Part of the Deregulation of the Institute of Storage and Monetary Control and Garn-St. The Germain Act extends the authority of federal S & amps leased to acquire, develop, and construct real estate lending, and the legal restrictions on the ratio of lending to value are abolished. The change allows S & amp; Ls to make high-risk loans for developers. Starting in 1982, many S & amp; Ls quickly shifted from traditional home mortgage financing and into new, high-risk investment activities such as casinos, fast-food franchises, ski resorts, junk bonds, arbitration schemes, and derivative instruments.
Federal deregulation also encourages state legislatures to deregulate S & amp; Ls being leased state. Unfortunately, many countries are deregulating S & amp; L is also soft in supervision and law enforcement. In some cases, S & amp; L being leased by the state has close political ties with elected officials and state regulators, which further weakens oversight.
When S & amp; s risk exposure expanded, the economy slumped into recession. Shortly thereafter, hundreds of S & amp; L that went bankrupt. Between 1980 and 1983, 118 S & amp; Ls with a $ 43 billion asset failed. The Federal Savings and Loan Insurance Corporation, a federal agency that insures S & amp; Ls, spent $ 3.5 billion to make the depositors intact again (compared, only 143 S & Ls with $ 4.5 billion in assets had failed in the previous 45 years, FSLIC cost $ 306 million). FSLIC encourages mergers as a way to avoid bankruptcy. From 1980 to 1982, there were 493 voluntary mergers and 259 forced merger of savings and loans overseen by the agency. Despite failures and mergers, there were still 415 S & Ls at the end of 1982 bankrupt.
Federal action initially caused problems by allowing agencies to engage in creating wealth with unhealthy fractional reserve practices, lending more money than could ever pay back to customers if they came to withdraw their money. That ultimately led to S & amp; Ls. Then, government inaction worsens industrial problems.
Responsibility for handling the S & amp; L is located on the Cabinet Board for Economic Affairs (CCEA), an intergovernmental council located within the President's Executive Office. At that time, CCEA was led by Finance Minister Donald Regan. CCEA encourages FHLBB to refrain from rearranging the S & amp; L and vigorously opposed any government spending to solve S & amp; L. Furthermore, the Reagan administration did not want to warn the public by closing a large number of S & amp; Ls. Such actions significantly exacerbate the S & amp; L.
S & amp; Crisis L takes place long after the economic crisis ends. The crisis was finally extinguished by the passage of the Financial Institution Reform, Recovery and Enforcement Act of 1989. Estimated total cost of settlement of the S & amp; L more than $ 160 billion.
Political fallout
The recession was almost a year before President Ronald Reagan declared on October 18, 1981 that the economy was in a "mild recession."
The recession, called the "Reagan recession," coupled with budget cuts, enacted in 1981 but came into effect only in 1982, led many voters to believe that Reagan was not sensitive to the needs of the average citizen. In January 1983, Reagan's popularity rating fell to 35%, close to levels experienced by Richard Nixon and Jimmy Carter in the most unpopular period. Although the approval ratings did not fall as low as Nixon during the Watergate scandal, Reagan's re-election seemed unlikely.
Pressured to ward off the deficit increase caused by the recession, Reagan approved a tax increase of the company in 1982. However, he refused to raise income tax or to cut defense spending. The Tax Equity Act and Fiscal Responsibility of 1982 set a three-year, $ 100 billion tax increase, the largest tax increase since World War Two.
The US midterm elections of 1982 were largely seen as a referendum on Reagan and his economic policies. The election results proved to be a setback for Reagan and his Republican. The Democrats won 26 seats in the seat of the House of Representatives, the most for parties in elections since the 1974 "Watergate Year". However, the clean power balance in the US Senate has not changed.
Recovery
United Kingdom
In Britain, economic growth was reshaped in late 1982, but the era of mass unemployment is far from over. By the summer of 1984, unemployment had reached a new record of 3.3 million although the Great Depression had seen a higher percentage of the unemployed workforce. It remained above 3 million until the spring of 1987, when Lawson Boom, seen as a consequence of tax cuts by Chancellor Nigel Lawson, sparked an economic boom that saw unemployment fall drastically. As early as 1988, it was under 2.5 million; in early 1989, fell below 2 million. By the end of 1989, it was just over 1.6 million, almost half the three years earlier. However, the unemployment rate does not include benefit claimers placed in the Employment Training scheme, an adult variant of the controversial Youth Training Scheme, paid at the same rate of benefits for full-time employment. Other incentives that helped restore the UK economy after the early 1980s recession included the introduction of the Company Zone on deindustrial lands where traditional industries were replaced by new industries as well as commercial developments. Businesses are given temporary tax breaks, and exceptions are an incentive to set up bases in such areas.
United States
The part-time election in the US was the lowest point of the Reagan presidency.
According to Keynesian economists, the combination of deficit spending and slowing interest rates will lead to economic recovery. However, the conservatives insist that a much lower tax rate leads to a recovery. From a 10.8% high in December 1982, unemployment gradually improved to 7.2% on Election Day in 1984. Nearly two million people left unemployed rolls. Inflation fell from 10.3% in 1981 to 3.2% in 1983. The company's revenue rose by 29% in the July-September quarter of 1983, compared to the same period in 1982. Some of the most dramatic improvements occur in most industries hit. by recession, such as paper and forest products, rubber, aviation, and the automotive industry.
In November 1984, voter anger in the recession had evaporated, and Reagan's reelection was certain. Reagan was re-elected by popular electoral and voting votes in the 1984 presidential election. Immediately after the election, Dave Stockman, OMB Reagan's manager admitted that the deficit came much higher than the projection that had been released during the campaign.
See also
- Recession of the early 1990s
- The 1982 crisis in Chile
- Offer-side economics
- Reaganomic
References
Source
Source of the article : Wikipedia
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