Similar to what happened with the Stock Market last Friday and this Monday, is that we had a major downturn of the market or in 1987’s case a crash when the basic fundamentals of the economy were strong. Not counting the high budget deficit and national debt. But with solid economic and job growth, low unemployment, and even seeing wages ramong middle class Americans going up. Before the 1929 Wall Street crash the economy was fairly strong as well and then the crash happened and shortly after that we’re not only in a recession but the Greatest Depression and the economy hasn’t been worst since even with the Great Recession.
I believe as an non-economist that 1987 is where we see the negative consequences of what’s called Reaganomics. The theory being that you can cut taxes deeply and increase government spending dramatically and that somehow the new economic growth will pay for those new priorities. But the opposite actually happened. When President Ronald Reagan comes to office in 1981 he inherited a budget deficit of about 40 billion dollars, which even in the early 1980s was a fairly small deficit. By the time President Reagan leaves office in 1989, we had a budget deficit of around 2 hundred-billion-dollars, which in the late 1980s was a large budget deficit. Today that would be over 400 billion dollars. The economy bounces back in 1988, but struggles in 1989 and we’re in a recession by 1990 that lasted about two years and costing President George H.W. Bush reelection.
If you look at recession of 1990-91, you had high interest rates, combined with inflation, with the high budget deficit contributing to the high interest rates. Because you had the Federal Government competing with the private sector to borrow money just to pay for it’s government operations. America is now due for another recession simply because we’ve been growing as an economy coming up on nine straight years now and have growing since the Great Recession broke in the summer of 2009. The longest economic expansion at least in modern history. Rarely do you see a decade pass in America without at least one recession even if that recession is mild.
Assuming the Trump Administration continues to borrow money in huge chunks, if inflation and interest rates were come onto the scene again especially with the Federal Reserve feeling the need to raise interest rates to combat inflation because of higher consumer spending because of wages being increased, we may be in another situation like we were in the early 1990s. A recession to go with high budget deficits and a national debt. That will have to be addressed with major coming for people to prevent the economy from getting even worst.