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Opposite factors caused same effects

Michael Reagan goes to great lengths to criticize President Obama and his administration.

But in criticizing the current administration, maybe he should review what occurred when his father, Ronald Reagan, took office in January of 1981.

Like this January, the country was going through a period of economic difficulty.

The cause of what occurred in the early 1980’s is almost exactly the opposite of what occurred in the last few years, but it led to many of the same problems.

As inflation continued to reach higher rates throughout the 1970’s, interest rates rose. In order to stop inflation Federal Reserve Chairman Paul Voelker followed a tight money policy, resulting in higher and higher interest rates, which had nearly brought the economy to a halt by the time Reagan took office.

Banks were paying 12 or 13 percent interest on certificate of deposits and interest rates on mortages were higher than that. Not too many people were buying or building houses.

High interest rates forced businesses to close and sent unemployment higher.

The current problems were caused in large part by too much lending to people who could not pay the money back. In too many cases, loans were made with complete indifference as to whether the money would ever be paid back.

When Reagan took office the federal deficit was $58 billion and the unemployment rate was 7.5 percent.

Reagan believed in tax cuts, smaller government and increased defense spending.

As a result of tax cuts, more defense spending, but few other cuts, the deficit jumped to $109 billion after one year and $188 billion after that.

In eight years, Reagan never submitted a balance budget.

The federal budget at the time was about $700 billion and growing, compared with the current $3 trillion federal budget.

The unemployment rate continued to grow during 1981 and 1982, peaking at 10.8 percent in November and December of 1982.

In large part due to the high unemployment rate, Republicans lost 26 seats on the U.S. House in the 1982 elections.

By 1984 the economy was improving and Reagan was re-elected in a landslide.

When Michael Reagan talks about record job loses and record deficits, it helps remind us that the same things occurred during the early days of his father’s administration.

Ten years after President Reagan left office, the economy had gone through another recession, but the federal government was reporting a small budget surplus and the unemployment rate was heading down to less than four percent.

The question is not whether the economy will bounce back, but when?

Michael Farrell is a writer at the Morris Daily Herald. He can be reached at (815) 942-3221 x 2028 or by e-mail at mfarrell@morrisdailyherald.com

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