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Strategies & Market Trends : The Residential Real Estate Crash Index
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To: Elroy Jetson who wrote (25695)12/8/2004 10:00:54 AM
From: Oblomov of 306849
 
One seldom-discussed fact is that the main reason for the surge in deficits in the early 80s was the dramatic fall in inflation. The debt was effectively being monetized in the late 70s, but that came to an end when the Fed finally demonstrated its resolve in ending the inflationary cycle. This isn't an excuse for deficits after, say, 1983, but it does explain why part of the massive tax cuts of '81 had to be given up in late '82.

Note that the federal debt's % of GDP bottomed out at about the same time as inflation. In many ways, we (meaning both the US Congress and individuals) are still operating under the assumption of inflation. The evidence of this is the federal and individual savings rates.
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