What caused 1980s inflation?

Question

In layman's terms (as opposed to jargon), what factors set off the early 1980s spree of inflation?

Answer 1

When the public is spending a lot, in order to keep prices competitive and not driving down the value of the dollar, the federal reserve raises the interest rates. This typically causes spending to decrease. When it does not, and prices rise and the people continue to spend, we have inflation.

The reason this is done? One does not want too much of the US dollar in circulation because the value is based on the availability. If the US spends a lot, then it puts a lot of the US dollars into the market, driving down the value. The value goes down, and the prices go up to compensate for this. Inflation takes hold of the nation, and it can upset our economy. There is a very delicate balance on this - too little money in circulation causes the value to escalate, causeing prices to plummet, which is a recession. Too much money out there, the value of the dollar goes down, causing prices to go up, and having inflation.

Reganomics as it was called, contributed greatly to the inflation of the 80's. Everything was put back in check, and it stayed that way for a while, until now. Does anyone else see a connection?

Answer 2

If I remember correctly, the government of the 1980's ran a huge budget deficit. This necessitated the government borrowing from the savers, us, to pay down the huge debt their budget ran up.
Next the biggest daily cost of the average American worker remained high and went higher, gasoline. Just as then, and now, the consumer cuts down on a lot of spending that keeps small business owners in business, buying wanted, not needed items. When the monthly gas bill eats up an additional $40-$100, and everything else the consumer purchases, adds the gasoline cost of doing business, the whole systen begins to fall apart because those living on credit must borrow more through credit cards to try to keep up, hoping the prices fall. They do tend to fall, but not fast enough to help the overall economy before it hurts the average Joe and Jane Doe. We, in effect, become the snake that eats it's own tail trying to keep up.
...jj

Answer 3

Willster, The whole premise is wrong. It was during the 70's that we had double digit inflation and double digit unemployment. after the first years of the Reagan administration, Alan Greenspan cut interest rates along with Reagan's Tax Cuts (Democrat Controlled Congress Passed it) What resulted was the highest peacetime economic expansion in american history that led clear to the mid 90's.

Answer 4

Ronald Reagan.

Answer 5

A spiral of easy money and borrowing designed to make the economy buoyant.

Answer 6

ronald reagan escalating the arms war with the ussr. spending billions and billions of dollars on weapons instead of education, and infrastructure.

Answer 7

too much money was printed

Answer 8

reaganomics.