America in the 20th Century - Vol. 10

America in the 20th Century - Vol. 10

America in the 20th Century - Vol. 10

America in the 20th Century - Vol. 10


As the eighties turned into the nineties, the foreign policy of the United States enjoyed huge success and good luck. The collapse of communism, the successful invasion of Panama, and the apparent triumph in the Gulf War seemed to establish that American supremacy was unshakable. Most Americans celebrated these events. Hut they didn’t have much else to celebrate. I he great American economic engine had stalled. That caused hardship for people across the country and raised tears that a major slump like the long one of the midseventies was in the making.

Triple Wharnmy

One problem was high levels of personal, corporate, and public debt. 1 he trend of the eighties continued: easy access to credit led people to borrow more and more money.

A new kind of debt added to this burden. Banks gave people “‘home equity loans.” These loans were based on the value of the portion of the consumer’s home that was not still under mortgage. Many consumers used these loans to fund home improvements, college costs, or vacations. Interest rates tended to be lower than for credit cards, and interest costs could be deducted from taxes. In the end, though, the money was still borrowed money. Home equity loans, just like credit cards, had to be repaid. Consumers who took on too much debt had difficulty paying it back, and the bankruptcy rate continued to rise, from just over 1 per 1,000 people in 1980 to 5.2 per 1.000 m 1998.

Business debt generally rose throughout the entire second halt of the twentieth century. The increase was sharpest in the eighties, when companies borrowed money to buy other firms. The debt load peaked around 1990. High interest rates were established by the Federal Reserve Bank to reduce demand for credit. This made businesses more vulnerable to an economic downturn. Since high debt forced them to make high interest payments, they had little extra cash to spare.

Meanwhile, the government’s debt was soaring. The national debt level first broke $1 trillion in 1982. Just four years later, it reached $2 trillion. In another tour years, it surpassed $3 trillion, but it only took two years to shatter the $4 trillion barrier. The reason for the mounting debt was simple. Each year, the government was running a deficit, spending more money than it collected m taxes. To meet the shortfall, the government had to borrow money, often at high interest rates. The result was a sea of red ink.

High levels of national debt caused two problems. First, the government was competing with businesses for investors’ dollars. Many people bought government bonds—funding the government debt—rather than

“Once in America if you
lost your job … you had
reason to believe you’d
be rehired…. Now if
you’re laid off from your
job as the number two
guy in public affairs at
the main jersey office of a
phone company, you
have reason to fear you’ll
never be hired back
into that or any
white-collar job.”

Peggy Noonan, on
workers’ anxieties

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