The Worst Economy Since the ... 1980s?

A Google News search shows that the phrase “since the 1930s” has been used 7,454 times in the last month, and the phrase “since the Great Depression” has been used almost 6,000 times in the last month, and most of these news references are comparisons of today’s economic and financial conditions to the 1930s and the Great Depression. In contrast, the phrase “since the 1980s” has been used only 758 times in the last month.

By comparing today’s economic conditions to the 1930s and the Great Depression, the news media have apparently skipped the terrible economic conditions of the early 1980s and gone all the way back 75 years to the 1930s, without a comparison to a more recent period like the early 1980s. Compare for example some of the key economic variables today to the peaks for those variables in the early 1980s (see graph above).

We are not even yet anywhere close to the economic conditions of that period. For example, the prime rate was more than six times higher in 1980 compared to today, core inflation in 1980 was six times higher than today, the unemployment rate in November and December of 1982 was more than a percentage point higher than the August 2009 rate, the 30-year mortgage rate in 1981 was almost four times higher than today’s 5 percent, the car loan rate in 1981 was 2.5 times higher than today, and real gas prices were 32 percent more expensive in 1981 than today. So before we start talking about the “worst economy since the 1930s” couldn’t we first look at the early 1980s as a benchmark of how bad economic conditions can get, using a more recent period?

And consider that as bad as the economic conditions were back in the early 1980s, the U.S. economy started on an economic expansion in November of 1982 that didn’t end until July 1990, 92 months later, and marked the third longest expansion in U.S. history.

Given the current environment with historically low interest rates and inflation, today’s economic and financial conditions are much more favorable for economic growth than the conditions of the early 1980s.

If the economy of the early 1980s recovered even when handicapped with historically high interest rates and inflation, today’s economy is much better positioned for what Larry Kudlow calls the pending “barnburning economic recovery.”

Comments

[nctbadri:]

well the only BIG difference is that all the interest rate cuts were ahead of you in the 1980, while now all monetary measures are behind you.....back in 1980, successive rate cuts could & did propel the growth of the economy. Now, all the boosters have been exhausted & infact could become headwinds shortly if inflation rears its ugly head.

Sep 25 03:13 PM

[Kup:]

Except for the jobless rate, all those "indicators" only reflect the difference in inflation rates. They're all based on the same issue. That is not a broad enough spectrum of indicators to compare the state of an economy.

Sep 25 03:31 PM

[enigmaman:]

yes while it would appear by the stats the early 80s recession is worse then 09, you did not compare home foreclosure rates, home equity lost, saving lost, ages for jobs lossed, as well as the rapid rate of these losses, the graphs you show are correct but I do not believe they unfolded at the rapid pace experienced during this recession, also as far as a barn burning recovery, the Fed is already talking about unwinding some stimulus programs as well as acting quickly to raise rates to avoid hyper inflation, this is the exact opposite of what happened in the 80s, and thats why the 80s recovery went through to the 90s and this recovery will be anemic

Sep 25 06:24 PM

[a fat panda:]

You are comparing apples and oranges. First, you are comparing the current recession to the peak of the previous one. Your comparison would have some meaning if we were at the end of the current recession.

Your comparison is like comparing a high school student and Yao Ming on a basis of height. Yao has stopped growing, and the high school student hasn't. Maybe that high school student eventually grows up to call Yao punk.

Also the data points are not the same. The definition of unemployment has changed, and so has the definition of inflation. Comparing data from today with that of 1980 is really pretty meaningless.

Sep 25 07:08 PM

[Bling Daddy:]

The Fed decides those rates, so can we judge any economic times by the way the Fed has manipulated rates and the market? If so, let's keep the rates down near zero forever! Hooray!

...Nice Try.

Sep 25 07:54 PM

[dondon:]

Why didn't you put up a graph showing mortgage defaults from the 1980's versus today? Why didn't you put up credit card defaults from the 1980's versus today. I would be curious if those numbers were greater or less than today's numbers.

Sep 25 08:25 PM

[besposito:]

why don't you try using the job metric that was used in 1980 and see whether or not unemployment looks better now

Sep 25 10:59 PM

[Bradley Kavin:]

What if when we begin to see the economy nominally recover, rates rise to those levels to curb inflation?

Talk about a double dip...

Sep 25 11:22 PM

[Dave Wrixon:]

The problem is that the economy is on the floor without high interest rates. When higher rates come which they surely must to stabilize the dollar, things can only get a hell of a lot worse. I see nothing to make anyone confident.

Sep 26 02:38 AM

[Dave Wrixon:]

Well, what would you expect from a complete charlatan?


On Sep 25 03:31 PM Kup wrote:

> Except for the jobless rate, all those "indicators" only reflect
> the difference in inflation rates. They're all based on the same
> issue. That is not a broad enough spectrum of indicators to compare
> the state of an economy.

Sep 26 02:42 AM

[Bradley Kavin:]

The question is whether or not financial market participants will stay invested when rates rise.

If rates rise to 1980 levels then the DJIAs' P/E Ratio should have to adjust.... 2007-2008 bust 2009-2010 boom 2011-20?? bust.....?

Sep 26 02:58 AM

[Mr. Ed, Jr.:]

What a naive, inane comparison.

The author wants to compare "benchmarks" like inflation, interest rates and, incredibly-- the "car loan rate".

The car loan rate ? Seriously? Our government has just handed out hundreds of billions of dollars to "buy" the broke car manufacturers, then added billions more to help buy cars for citizens, while artificially keeping interest rates low so that all of the other government schemes would not blow up what is left of this economy.

How was the foreclosure rate back in your good old days ? Were homeowners sending in the house keys instead of the house payment ? Were banks stalling on forecloses in order to keep from writing off the bad loan ? Were the banks insolvent, propped up by a flood of taxpayer cash ?

Credit card loans are approaching double-digit default rates, unemployment-- the real number, not the government's "pretend" number-- is 17%, there have been all-time high records of NOD's in 3 months so far this year, and the government has been desperately handing out 8k downpayments to buyers to entice them with those new 3.5% down FHA loans. That makes them no-down home loans. Again. But the author probably thinks that is a good thing, like "Cash for Clunkers." (By the way....how are car sales since that clunkers program ended ?)

Trillions have been spent trying to stimulate this economy and fend off bank failures. The FDIC is broke. And then there is this:

"Distressed investing specialist Wilburt Ross, CEO of WL Ross & Co., told CNBC Monday morning that he expects the carnage in the banking sector to continue with as many as 1,000 banks closing before it's all over." thedeal.com Sept 15, 2009

Americans are filing for bankruptcy at a rate of over 5,500 per day. Per day. Over 1.4 million will file this year, estimates the American Bankruptcy Institute. Sure, that's going to be short of the record of just over 2 million in a year, but still....

This does not even begin to cover the bankruptcy and deficits of many states, massive pension shortfalls and commercial real estate on the brink-- hotels are now sending in the keys to the property instead of making their payment to the banks. That's right-- hotel owners are walking away, a la home owners. Many were financed in the recent boom and are unable to generate anywhere near the revenue needed to make the loan payments.

The deleveraging will continue because it has to-- there is no alternative. The massive debt overhang must be paid down or written off. Either way, it will be extremely painful for many years. And there will be no "barnburning economic recovery " any time soon, unless this new paradigm can get it done without the consumer.

The article is ridiculous.

Sep 26 03:34 AM

[Michael Clark:]

In truth, interest rates should have been raised in the mid 60's and throughout the 60's and 70's. Instead, we tried to keep rates low -- sort of like what we're trying today, without, of course, the HUGE DEBT LEVEL. This generated the stagnation of a contracting economy with the inflation of a stupid Fed policy of being afraid of deflation. Deflation is as much a part of the picture as expansion and inflation is. So Volcker had to save the day by disciplining the coountry in the 80's. Hence, the high interest rates.

In fact, during a Night Cycle (1965-1983), the goal is the deflate prices and raise interest rates, strength the currency. The goal of the Day-Cycle (1983-2001) is to expand the money supply, lower rates, increase prices. It's a breathing process.

We should have been raising rates now from 2001. We have to be disciplined if we want to exist for a long time as a national entity. Expand and then contract. Inflate and then deflate. You need both sides of the equation.

Sep 26 09:35 AM

[Michael Clark:]

I have to agree. Cheerleading the recovery will not make the recovery real.


On Sep 26 03:34 AM Mr. Ed, Jr. wrote:

> What a naive, inane comparison.
>
> The author wants to compare "benchmarks" like inflation, interest
> rates and, incredibly-- the "car loan rate".
>
> The car loan rate ? Seriously? Our government has just handed out
> hundreds of billions of dollars to "buy" the broke car manufacturers,
> then added billions more to help buy cars for citizens, while artificially
> keeping interest rates low so that all of the other government schemes
> would not blow up what is left of this economy.
>
> How was the foreclosure rate back in your good old days ? Were homeowners
> sending in the house keys instead of the house payment ? Were banks
> stalling on forecloses in order to keep from writing off the bad
> loan ? Were the banks insolvent, propped up by a flood of taxpayer
> cash ?
>
> Credit card loans are approaching double-digit default rates, unemployment--
> the real number, not the government's "pretend" number-- is 17%,
> there have been all-time high records of NOD's in 3 months so far
> this year, and the government has been desperately handing out 8k
> downpayments to buyers to entice them with those new 3.5% down FHA
> loans. That makes them no-down home loans. Again. But the author
> probably thinks that is a good thing, like "Cash for Clunkers." (By
> the way....how are car sales since that clunkers program ended ?)
>
>
> Trillions have been spent trying to stimulate this economy and fend
> off bank failures. The FDIC is broke. And then there is this:
>
> "Distressed investing specialist Wilburt Ross, CEO of WL Ross &
> Co., told CNBC Monday morning that he expects the carnage in the
> banking sector to continue with as many as 1,000 banks closing before
> it's all over." thedeal.com Sept 15, 2009
>
> Americans are filing for bankruptcy at a rate of over 5,500 per day.
> Per day. Over 1.4 million will file this year, estimates the American
> Bankruptcy Institute. Sure, that's going to be short of the record
> of just over 2 million in a year, but still....
>
> This does not even begin to cover the bankruptcy and deficits of
> many states, massive pension shortfalls and commercial real estate
> on the brink-- hotels are now sending in the keys to the property
> instead of making their payment to the banks. That's right-- hotel
> owners are walking away, a la home owners. Many were financed in
> the recent boom and are unable to generate anywhere near the revenue
> needed to make the loan payments.
>
> The deleveraging will continue because it has to-- there is no alternative.
> The massive debt overhang must be paid down or written off. Either
> way, it will be extremely painful for many years. And there will
> be no "barnburning economic recovery " any time soon, unless this
> new paradigm can get it done without the consumer.
>
> The article is ridiculous.

Sep 26 09:37 AM

[Jose Urioste:]

In the 80's USA was net creditor of the world.
The global size of the actual crisis is far bigger
Keep it simple....

Sep 26 09:52 AM

[John Bowman:]

The main reason inflation was rampant in the early 80s was the oil situation which dramatically increased the price of fuel and the resulting domino effect.

In addition, many workers had cost of living provisions built into their contracts back then.

The Fed jumped in and raised interest rates often to avert the crisis.

I bought my home in 1980 fearing things would get a lot worse. I found an assumable 8-1/2% rate and was thrilled with that rate. During that period, mortgage rates were approaching 13%. If I recall, you could also get 15% or more CDs.

Totally different scenario.

Sep 26 11:01 AM

[isurfmb:]

This would be a viable argument if we could establish the end of the recession for your current today figures. What has indicated the end to every recession/depression? Well housing starts and employment. Am I hearing a call for the first ever jobless -homeless recovery? I'm sorry but I'm not buying it on the back of one of the largest if not the largest banking/financial collapses in human history.

Sep 26 12:10 PM

[Bradley Kavin:]

A jobless recovery is like an asset-less bank: Real only because we perceive it as real.

Sep 26 09:59 PM

[Bradley Kavin:]

Another concern of mine is the instant money begins to flow through the system and a high multiplier effect begins, the fed will be FORCED to raise interest rates substantially to avoid runaway inflation.


W

Sep 26 10:02 PM

[W.E. Heasley:]

The economic numbers, as a comparison, are interesting.

However, the early 1980's recession was not in anyway comparable to the present Economic Uncharted Waters.

The current economic policies coming out of the Administration and Congress, in regards to the Economic Uncharted Waters, reminds me of the Spanish ships in the “Horse Latitudes”. The economic policies are part sink, part swim, part through the horses overboard, and part wait for the wind to blow.

Sep 26 10:17 PM