What was so special about the 1980s recession?

StevieJ

mewbie wrote: »

3) The sheeple know they are going to be cheaper tomorrow.

If the banks lend 90% at a reasonable rate and FTBers will be queuing up.

Rochdale_Pioneers

The 90s recession was the worst. Not the deepest, not the longest, but the most pointless. A self-inflicted crash created by the hubris of Nigel Lawson and his insane 1988 budget which fuelled a growing economy so that it ran away with itself and melted down. At least with the early 80s and 70s and now you can point to some big structural problem here or abroad as the cause.

the_ash_and_the_oak

StevieJ wrote: »

Houses are not selling for two reasons
1) People are not putting them up for sale
2) The banks will not lend the money to buy them with

This is a succint post imo. Think people would be queuing round the block to buy if these two factors were reversed. Sentiment not really affected at all imo. Low interest rates for current owners and other measures means more people will be able to hold on to their houses (plus many will not want to sell at a perceived loss) - and banks will not lend at current prices

kinda feeling the problem is not with sellers, not with repossessions, but with buyers not having the requisite funds/ability to enter the market. Not really feeling the low interest rates are available to that many (other than current owners)

Not really seeing any of this changing any time soon. the reason prices will continue to drop imo is not because of forced sales, but because of no entrants to market

Entertainer

Rochdale_Pioneers wrote: »

The 90s recession was the worst. Not the deepest, not the longest, but the most pointless. A self-inflicted crash created by the hubris of Nigel Lawson and his insane 1988 budget which fuelled a growing economy so that it ran away with itself and melted down. At least with the early 80s and 70s and now you can point to some big structural problem here or abroad as the cause.

That's the third time I've read that from you and I'm afraid I'm going to have to disagree. The early 90's recession was triggered by the stockmarket crash of 1987 when central banks around the developed world, fearing a depression along the lines of the aftermath of the 1929 crash, cut interest rates. It transpired that the real economy was not actually affected by the crash and therefore the economy overheated, inflation went up and interest rates were raised again.

This was global in its nature.

I'm not aware if the 1988 Budget was a deliberate attempt at a fiscal stimulus or whether it was part of the ongoing Lawson plan to reduce taxes, however, it certainly didn't help. The recession was not "made in Britain" though and I doubt hubris came into Nigel Lawson's fiscal policy, his monetary policy of shadowing the DM, maybe. On that subject, the recession in Britain lasted far longer than the brief recession in the U.S because we'd entered the ERM (a policy supported by all the political classes- opposition parties including your own, trade unions, newspapers) and were stuck with higher interest rates than needed due to Germany's inflationary reunification bubble.

This was the not the the last time politicians in this country were to demonstrate their ineptitude for macroeconomics- see today.

Therefore, the early 90's recession was more excusable than the current one, borne as it was out of a desire to avoid the mistakes of the 1930's.

To answer the OP's question, the early 80's and 90's were similar in that they were caused by high inflation, leading to high interest rates. This recession does bear striking similarities to the 1930's- the bursting of an asset price bubble, insolvency in the banking system followed by deflation. The most recent example of this was Japan in the 90's.

penguine

Entertainer wrote: »

To answer the OP's question, the early 80's and 90's were similar in that they were caused by high inflation, leading to high interest rates. This recession does bear striking similarities to the 1930's- the bursting of an asset price bubble, insolvency in the banking system followed by deflation. The most recent example of this was Japan in the 90's.

Thank you -- that's a very concise and informative answer.

Rochdale_Pioneers

Entertainer wrote: »

That's the third time I've read that from you and I'm afraid I'm going to have to disagree. The early 90's recession was triggered by the stockmarket crash of 1987 when central banks around the developed world, fearing a depression along the lines of the aftermath of the 1929 crash, cut interest rates. It transpired that the real economy was not actually affected by the crash and therefore the economy overheated, inflation went up and interest rates were raised again.

Funny how so many Tory MPs at the time blamed Lawson personally for the crash. Yes, the stock market crashed. then it recovered strongly. Low interest rates kept too low were the kindling, they caught fire as city deregulation set the economy off into strong growth, then Lawson poured fuel on with large tax cuts in 88. Inflation took off like a rocket and only then - far too late - were Interest rates banged up.

You said that the 88 budget wasn't the main event? Watch inflation shoot up from 3% in 88 to 8% - at the same time consumer spending shot up to 8%. The ERM was a reaction to runaway inflation and already sky high interest rates, as Major puuts it in his autobiography the "only conceivable" policy that could repair the damage. And yet in another policy disaster we joined at a rate impossibly high which managed to maintain interest rates in the clouds - throttling industrial production. And THAT is what hurled us into recession, not a stock market crash 3 years prior.

There was a recession in other countries - a brief shallow one. It was not remotely a global event - unless you have a comprehensive list of most of the developed and developing world all crashing at the same time? External factors had an impact, but the key drivers were home grown - interest rates kept too low (controlled by Lawson), a giant tax giveaway (Lawson) and ERM entry at a stupid level (argued by Lawson, finally implemented by his former Chief Secretary when Major replaced him as Chancellor). Lawson believed his own press - the great economic miracle where 4%+ growth was healthy.

Show me where this recession has home grown drivers unique to the UK that you can finger Brown for? Did inflation run away? Did high interest rates strangle the economy? Did economic growth stay steady or gallpr off at an unsustainable rate? Banking deregulation is mentioned, as is the housing bubble. And yet countries with neither problem have found themselves pitched into as deep or deeper recessions at exactly the same time as we did. Logic dictates that these drivers were peripheral to the global even that swept the floor away from all of us.

Brown made mistakes, believed his own press and acted out of hubris. And yet year after year after year the right wing commentators predicted disaster and disaster never came. Until the near collapse of Global capitalism came along and sunk us all together.