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A comparison of the recession of the early 1980s and today



May 20, 2010 – Comments (3) | RELATED TICKERS: DE , VO


I was working on a project today and I came up with an interesting statistic:

Through April 2010 (the latest numbers available) U.S. market light vehicle sales are up 17.7%.  If this trend continues and sales finish 2010 up 17% (over 2009) this would be the largest year-over-year increase in auto sales since...1984 when sales rose exactly 17.0%.  Auto sales also rose 17% y-o-y in 1983.

Interesting.  It got me thinking about the similarities and differences between the massive recession that we had in the early '80s and today.

Many people blame the '80s recession on the necessary, but unpleasant dramatic increase in interest rates by then Chairman of the Fed Paul Volker who was battling the country's massive inflation problem.  Interest rates were significantly higher in the early 1980s than they are today, but if one looks hard enough they can see a similar pattern of rising interest rates that happened when Alan Greenspan raised rates quarter point, by quarter point, by quarter point not that long ago (I don't think that the disgusting Greenspan should not have raised rates, but instead that he waited too long to do so).

Another similarity between the two periods is during both the United States experienced a banking crisis, then the S&L crisis.  Both our recent banking problem and the S&L crisis were brought about in part by deregulation and lax enforcement by government agencies.

At first glance these similarities between these two periods might lead one to believe that we will see a similar economic recovery to the one that we saw back then.  Check out the impressive economic growth that the United States experienced as it emerged from the recession in the '80s:

So we should expect a similar period of rapid growth now, right?  Not so fast.  There is a key difference between that time period and today...debt.  Take a look at the following charts of U.S. government debt and private sector debt:

Government Debt:

U.S. Private Sector Debt:

The debt levels in the 1980s were a lot higher then than they are today.  The question is whether this debt will derail what would have been a similar economic recovery.  My guess is that it will mute the recovery significantly, but not completely stop it in use an annoyingly overused phrase..."New Normal" sort of way.

I was alive during the early 80s, but following the economy wasn't at the top of my list of things to do back then.  I had more important things to do like playing sports or watching Star Wars so I'd love to hear the thoughts on this subject from someone who is old enough (and not coked-out) in the 1980s to have been aware of the inner workings of the economy back then.  How do you think today compares to the recession at that time?


3 Comments – Post Your Own

#1) On May 20, 2010 at 5:00 PM, TMFDeej (97.48) wrote:

Here's an interesting, unrelated chart that I just came across on The Big Picture:


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#2) On May 20, 2010 at 7:04 PM, Option1307 (30.65) wrote:

The debt levels in the 1980s were a lot higher then than they are today. 

You have to stop bloging from work! Jk, keep them coming Deej!

I'm pretty sure you ment to say that the debt levels are higher now vs. 1980's. Also, the Private Sector Debt chart is just a repeat of the first chart.



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#3) On May 20, 2010 at 7:58 PM, TMFDeej (97.48) wrote:

Good point, I ended up losing the second chart somehow, but you can imagine what it looked like.



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