Bad Now? It Was a Lot Worse in the Early '80s

It could be a lot worse. It WAS a lot worse in the early 1980s:

Comments

[Lea Cabrerra:]

We'll get there.

The Federal Reserve has destroyed U.S savings by keeping interest rates artificially low for so long.

If we are ever to recover as a country we must restore our savings. One way or the other, interest rates are going higher and so is the unemployment rate. Logic says substantially higher.

Finally, we as a country have to come to the realization that we must destroy the central banks before they destroy the country.

The sole purpose of the Democrats and Republicans is to split the country so as to avoid placing blame where it is properly do -- at the feet of the Federal Reserve.

Feb 17 09:42 AM

[PassingBy55:]

You make good points, I wouldn't try to deny that the situation today is not as bad as the early 80's. The question is how long will our economy persist in this coma-like state on the Fed's life support.

As far as inflation and mortgage rates go, we could see those soar when the Fed attempts to reel back in the ~$5 trillion (give or take a couple trillion) it pumps into the private sector to keep this ridiculously indebted culture going.

Something has to give in time, I have my fingers crossed that our nation learns something from this peek of the abyss and begins adding productive capacity and consuming less.

Your chart makes a great deal of sense but a reader should not ignore that our culture faces great challenges ahead, then there's the quandry of entitlements and health care. I'd be curious to see a realistic assessment of quality of life compared to 80's because I'm sure income inequality is worse today.

Feb 17 09:47 AM

[Grendeth:]

I could not agree more, the nation has to learn to consume less but in a culture of spending oneself into debt, it will take a lot more than a few months of negative news. Unless things get a lot worst till next year, folks won't learn & while I certainly hope we get out of this downward spiral by then, human nature will chalk this one up to bad luck and great government & then continue its merry way into spending itself into new debt by new individuals.


On Feb 17 09:47 AM PassingBy55 wrote:

> You make good points, I wouldn't try to deny that the situation today
> is not as bad as the early 80's. The question is how long will our
> economy persist in this coma-like state on the Fed's life support.
>
>
> As far as inflation and mortgage rates go, we could see those soar
> when the Fed attempts to reel back in the ~$5 trillion (give or take
> a couple trillion) it pumps into the private sector to keep this
> ridiculously indebted culture going.
>
> Something has to give in time, I have my fingers crossed that our
> nation learns something from this peek of the abyss and begins adding
> productive capacity and consuming less.
>
> Your chart makes a great deal of sense but a reader should not ignore
> that our culture faces great challenges ahead, then there's the quandry
> of entitlements and health care. I'd be curious to see a realistic
> assessment of quality of life compared to 80's because I'm sure income
> inequality is worse today.

Feb 17 09:55 AM

[sickofthehype:]

Early 80's were after the debacle, and today is before the debacle.. Apples to oranges.

Give it a couple years - we'll have the high inflation, the high prime rate, the high(er) unemployment, yada, yada....

Feb 17 10:03 AM

[raytayzmd:]

...what you failed to chart was the number of hedge funds in existence and the quantity of worthless "assets" floating around.

Feb 17 10:25 AM

[bobbobwhite:]

When you hand pick the points of reference that are placed on your chart, you can make anything seem as you want it to look. Yes, all of those things were bad at that time, but what about other crucial indicators of economic trouble, such a GDP growth, trade imbalance, foreign debt, national debt, etc. that also should have been included? Nothing.

From this and past articles, I see that you seem to have a proclivity for distortion. I will avoid your writings in the future.

Feb 17 11:53 AM

[sether:]

This is a joke, right? Yes those are a good collection of "key economic indicators" if your intent is to show that 1982 was 'alot worse' than today. It's also a narrow collection. Half of them are related to interest rates, and those being kept low for the last 10 years are part of the reason we are in trouble today. Let's see some other key economic indicators, please?

Feb 17 01:27 PM

[prudentinve...:]

At least your graph shows an important fact, that interest rates were higher than inflation, thanks to the boldness of Paul Volcker. This wrung out inflation and speculation, re-invigorated savings (to almost 10%), and set us on the road to a long and sustainable recovery, until Alan Greenspan reversed the interest rate trend, killing savings, and igniting speculative bubbles.

Feb 17 05:18 PM

[PastTense:]

In terms of two of the numbers: inflation and unemployment rate the government has substantially changed the way it measures them since 1980. I expect the unemployment numbers would be comparable, and the inflation numbers closer.

Feb 17 06:56 PM

[ptgkc:]

Sickofthehype is right, and I hope this is a joke. 4 charts and 3 focus on inflation. Of course, a deflationary crisis is going to "look better" on a chart than an inflationary enviroment.

The employment chart is hopelessly out of date. Both Reagan and Clinton changed the defintion and calculation. Using old benchmarks, our current unemployment rate might be upwards of 13%.

Real wages have fallen & real savings are down since 1982, and we are just starting our own lost decade. 1972 - 1982 was bad. 2002 to 2007 was a mirage with the housing bubble. No real growth.

Market collapse and all consumer implications from October 2007 to ??? will be worse when everything is finally unleveraged.

Feb 17 09:59 PM

[Dirk McCoy:]

The big difference in my opinion? A President in 1981 who didn't accept that peak oil would consign us to a lower standard of living, vs. a President in 2009 who seems hell bent on convincing us that a lower standard of living is patriotic.

As for ptgkc, living standards are vastly improved now over 1982. I could cite a bunch of data, but you only need open your eyes. And that's not including the amazing progress across the rest of the world (save for those places where unchecked sex and violence have created terrible carnage).

Feb 17 10:43 PM

[BigGuy:]

Not true, the economy is worse now. The charts distort reality, they do not show it. if the jobless rate is calculated today as it was in 1982, it would be over 11%. Adjusted for inflation, the 30 year mortgage in 1982 was 3.7% vs. 5.16% now.

Feb 18 02:08 AM

[Yohei:]

From the S&P website, there is a list of quarterly S&P500 trailing 12 month earnings per share from 1997 through 3rd quarter 1982:

09/30/1982 8.88
06/30/1982 7.74
03/31/1982 7.56
12/31/1981 7.98
09/30/1981 7.61
06/30/1981 8.74
03/31/1981 9.33
12/31/1980 9.16
09/30/1980 8.57
06/30/1980 7.65
03/31/1980 6.68
12/31/1979 7.26
09/30/1979 7.47
06/30/1979 7.36
03/31/1979 7.64
12/31/1978 7.79
09/30/1978 8.86
06/30/1978 8.51
03/31/1978 8.17
12/31/1977 8.73
09/30/1977 9.01
06/30/1977 9.64
03/31/1977 9.76

I rather believe we will see this sort of pattern again.

The most realistic S&P500 earnings for 2009 I've seen is $28. At a P/E of 10 we are looking at an S&P500 of 280. If the future holds five years of S&P500 P/Es of less than ten, and we figure that 2016 S&P500 earnings are $500, then we should expect the S&P500 to be between 250 and 500 during those years. It is reasonable to expect that in the nearer term the numbers will be on the lower part of the range.

Feb 18 10:56 AM

[Yohei:]

Please excuse the arithmetic error. Please change the possible 2016 S&P500 earnings to some more rational number, like $75, for an S&P500 of 750. Of course estimating S&P500 earnings that far out is not even guesswork but only a number pulled out of a hat.


On Feb 18 10:56 AM Yohei wrote:

> From the S&P website, there is a list of quarterly S&P500
> trailing 12 month earnings per share from 1997 through 3rd quarter
> 1982:
>
> 09/30/1982 8.88
> 06/30/1982 7.74
> 03/31/1982 7.56
> 12/31/1981 7.98
> 09/30/1981 7.61
> 06/30/1981 8.74
> 03/31/1981 9.33
> 12/31/1980 9.16
> 09/30/1980 8.57
> 06/30/1980 7.65
> 03/31/1980 6.68
> 12/31/1979 7.26
> 09/30/1979 7.47
> 06/30/1979 7.36
> 03/31/1979 7.64
> 12/31/1978 7.79
> 09/30/1978 8.86
> 06/30/1978 8.51
> 03/31/1978 8.17
> 12/31/1977 8.73
> 09/30/1977 9.01
> 06/30/1977 9.64
> 03/31/1977 9.76
>
> I rather believe we will see this sort of pattern again.
>
> The most realistic S&P500 earnings for 2009 I've seen is $28.
> At a P/E of 10 we are looking at an S&P500 of 280. If the future
> holds five years of S&P500 P/Es of less than ten, and we figure
> that 2016 S&P500 earnings are $500, then we should expect the
> S&P500 to be between 250 and 500 during those years. It is reasonable
> to expect that in the nearer term the numbers will be on the lower
> part of the range.

Feb 18 11:01 AM

[Shaggieman:]

Yohei, I've seen S&P earnings from as low as $47 to $70 for 2009. I don't know where your $28 number comes from but seems way, way off to me.

Feb 18 11:24 AM

[Teutonic Kn...:]

Prof. Perry, PhD:

Again, my 2-cent worth of input to you.

First of nice diagram

However, it doesn't mean that things would not get worse (or even much worse) than the early 1980 situations. I'm not being pessimistic, it is just no one can tell what the future holds

Economics is not an exact science, and depends on a large part how humans would behave.

Feb 18 05:11 PM

[Teutonic Kn...:]

prudentinvestor:

It is interesting to see how Sir Alan ingeniously denied those insinuations at his Senate Hearing last Fall. He categorically disclaimed responsibility saying that he had no control over lenders with their fever for derivatives.

Believable? Or was he under the influence of the voice behind the (Fed Chair) throne?


On Feb 17 05:18 PM prudentinvestor wrote:

> At least your graph shows an important fact, that interest rates
> were higher than inflation, thanks to the boldness of Paul Volcker.
> This wrung out inflation and speculation, re-invigorated savings
> (to almost 10%), and set us on the road to a long and sustainable
> recovery, until Alan Greenspan reversed the interest rate trend,
> killing savings, and igniting speculative bubbles.

Feb 18 09:35 PM

[JamieLee10:]

In regards to Dirk's response;

"The big difference in my opinion? A President in 1981 who didn't accept that peak oil would consign us to a lower standard of living, vs. a President in 2009 who seems hell bent on convincing us that a lower standard of living is patriotic."

I don't think the President of 2009 should be brought into question over the situation at hand. I think you left out the President from 2000-2008 who could have done things differently and didn't. Our economy doesn't have to be where it is today if only things where ran more effectively & efficiently.

Mar 11 11:40 AM