50000FT
Economy Since 1980
Robert Mertens
Since 1980, the U. S. economy has fluctuated at times as it has seen massive overall growth. In 1980 stagflation contributed to a “Misery Index� of 22% (unemployment at 7.6% combined with inflation at 14.4%). With the election of Ronald Reagan, the U.S. pursued a fiscal policy of massive tax cuts and cuts in government spending. After a short recession in 1982, the economy began to improve with “trickle down� economic policies. The belief was that cutting taxes for the rich would be a positive incentive to invest more and stimulate the economy. The slogan, “A rising tide lifts all boats� justified the lowering of the top tax rate from 70% to a 33% maximum. This economic growth caused more revenue to flow into the government even with the lower rates but as defense spending increased to confront the Soviet threat and Congress would not rein in domestic spending, the federal debt increased. A booming economy caused the stock market to increase and mortgage loans for real estate development given out more freely. Changes in tax laws caused some developers to default on their loans and then, in October 1987, the stock market dropped 508 points in one day, its biggest loss ever. Two days later it jumped back up 187 points in one day. These sudden events in the duration of less than a week caused consumer confidence to waiver.
As the eighties drew to a close, however, international trade and the economy were dramatically increasing with the fall of the Soviet Union and the more capitalist-friendly economic policies in China. The 90s saw a booming U.S. economy and of economies worldwide with Russia’s emergence as an international exporter of oil and natural gas causing a drop in energy prices and new computer technologies becoming major economic assets. Free trade agreements and outsourcing to cheap labor sources, predominantly China, along with new technology stocks caused the stock market to grow from 2590 points to 11,497 points during that one decade. This, along with average GDP growth of over 3% per year and minimal inflation caused a massive economic growth throughout the decade. During the 90s however, with illegal immigration and high outsourcing of manufacturing, lower class workers believed that their jobs were being compromised, whereas the rich were getting richer and the poor poorer. The reality was that, overall, everyone was able to have more in the 90s compared to just a few decades before.
In 2000, the “Tech Bubble� burst and suddenly many people who had invested in overpriced tech stocks hoping to have bought the next Microsoft began to fear that their stock was overvalued and all began to sell at the same time. By 2002 the stock market had fallen to 7590 with the help of the September 11 atrocities and an increase in government costs. To help recover, looser credit for home mortgages was encouraged and groups of mortgages were bundled together to sell as investments. This spiraled out of control as “get rich� buyers over extended themselves buying homes hoping to flip them for a profit or refinance them to pull out cash from the equity to spend on consumer goods. This resulted in many homeowners having massive debt but with the expectation that continuing increases in home values would enable them to get away with irresponsible purchases. The oil shock of 2007 caused an economic slowdown and tremendous losses by American car companies. As unemployment began to creep up there were increasing defaults on mortgage payments and a loss of confidence by investors in mortgage-backed securities. This domino effect has crushed stock market values and led the government to attempt to stop the decline with “bail-outs� for seemingly anything and everything. Whether this is the right course of action will only be seen in the future by looking back and what is being done and analyzing the results as no government borrowing on this scale and resulting involvement in private companies and banks has every been tried before in peacetime.
Robert Mertens
Since 1980, the U. S. economy has fluctuated at times as it has seen massive overall growth. In 1980 stagflation contributed to a “Misery Index� of 22% (unemployment at 7.6% combined with inflation at 14.4%). With the election of Ronald Reagan, the U.S. pursued a fiscal policy of massive tax cuts and cuts in government spending. After a short recession in 1982, the economy began to improve with “trickle down� economic policies. The belief was that cutting taxes for the rich would be a positive incentive to invest more and stimulate the economy. The slogan, “A rising tide lifts all boats� justified the lowering of the top tax rate from 70% to a 33% maximum. This economic growth caused more revenue to flow into the government even with the lower rates but as defense spending increased to confront the Soviet threat and Congress would not rein in domestic spending, the federal debt increased. A booming economy caused the stock market to increase and mortgage loans for real estate development given out more freely. Changes in tax laws caused some developers to default on their loans and then, in October 1987, the stock market dropped 508 points in one day, its biggest loss ever. Two days later it jumped back up 187 points in one day. These sudden events in the duration of less than a week caused consumer confidence to waiver.
As the eighties drew to a close, however, international trade and the economy were dramatically increasing with the fall of the Soviet Union and the more capitalist-friendly economic policies in China. The 90s saw a booming U.S. economy and of economies worldwide with Russia’s emergence as an international exporter of oil and natural gas causing a drop in energy prices and new computer technologies becoming major economic assets. Free trade agreements and outsourcing to cheap labor sources, predominantly China, along with new technology stocks caused the stock market to grow from 2590 points to 11,497 points during that one decade. This, along with average GDP growth of over 3% per year and minimal inflation caused a massive economic growth throughout the decade. During the 90s however, with illegal immigration and high outsourcing of manufacturing, lower class workers believed that their jobs were being compromised, whereas the rich were getting richer and the poor poorer. The reality was that, overall, everyone was able to have more in the 90s compared to just a few decades before.
In 2000, the “Tech Bubble� burst and suddenly many people who had invested in overpriced tech stocks hoping to have bought the next Microsoft began to fear that their stock was overvalued and all began to sell at the same time. By 2002 the stock market had fallen to 7590 with the help of the September 11 atrocities and an increase in government costs. To help recover, looser credit for home mortgages was encouraged and groups of mortgages were bundled together to sell as investments. This spiraled out of control as “get rich� buyers over extended themselves buying homes hoping to flip them for a profit or refinance them to pull out cash from the equity to spend on consumer goods. This resulted in many homeowners having massive debt but with the expectation that continuing increases in home values would enable them to get away with irresponsible purchases. The oil shock of 2007 caused an economic slowdown and tremendous losses by American car companies. As unemployment began to creep up there were increasing defaults on mortgage payments and a loss of confidence by investors in mortgage-backed securities. This domino effect has crushed stock market values and led the government to attempt to stop the decline with “bail-outs� for seemingly anything and everything. Whether this is the right course of action will only be seen in the future by looking back and what is being done and analyzing the results as no government borrowing on this scale and resulting involvement in private companies and banks has every been tried before in peacetime.
posted by Mert at
10:27 PM
0 Comments:
Post a Comment
<< Home