• • FINANCE
• The 1980s recession was a period when the entire world was affected by recession. Developed counties such as United States and Japan were similarly affected though they exited from it much earlier than other countries. The recession mostly started from the late 1970s but cascaded into the 1980s. The major effects of the recession led to the United States facing a number of economic crises such as; the debt crisis that rocked Latin America and the financial meltdown that met the savings and loan industry (Armstrong & Blackwell, 2005, pg.136).
• A recession in business terms is referred to as a period of general delay in economic activity faced by a country or a number of countries in the world. Various countries such as the United States which are financial super powers have a drastic effect on all the other nations should they be faced with a financial recession. Recession in the US was caused by the various monetary policies that contracted in nature, instigated by the Federal Reserve System (Hunt & Lautzenheiser, 2011, pg.54). The effects were almost instantaneous as unemployment levels skyrocketed in major parts of the country. The main aim of the policy was to reduce the amount of money supply in the economy. This was done through measures such as; the open market operations that sort to reduce the money supply by selling bonds to the public and taking their liquid cash in exchange.
• Federal Reserve raised the reserve requirements that required banks to increase the amount of liquid cash they had in their reserve hence, crippling their ability to lend more money to the public. Other measures taken include; through a discount window dressing, the Federal Reserve withheld the right to demand the money they had lent to banks to be repaid back, this reduced the amount of cash held by banks. They also increased the interest rates to reduce the rate at which banks borrowed cash from them, since it was at high rates that would not be attractive to the public due to the high interest rate repayment (Hunt & Lautzenheiser, 2011, pg.70).
• The recession came at a time when there was a deregulation on the various statutory policies, giving immense powers to banks to increase their lending capacities on real estate; this move could not have come at worse time. When recession struck, many people became unemployed and were therefore unable to repay there loans. Inflation hit the country hard, with levels reaching up to 9.1% in 1979 and as high as 13.5% in the early 1980s (Armstrong & Blackwell, 2005, pg.74).
• Similarly, the Saving and Loan Institutions were a federal chattered institution whose total net assets were above $616 but during the recession, they started losing money at a high rate with their tangible net worth reaching an all time low by the end of 1982. Federal Home Loan Bank Board (FHLBB) controlled the S&L institutions and regulated their activities making them to have restricted lending powers. The FKLBB therefore, monitored an industry that was perceivably quiet and had few transactions however, with the new deregulation policies, the board with its limited staff were unable to supervise the works of the industry that spiraled out of control with S&L institutions offering a large number of loans to the public with little savings. The S&L emergency worked its way up to the end of 1982. This required an enormous financial bailout by the government that only added further strain on the already bad budget (Black, 2007, pg.176).
• The Latin American debt crisis arose when a number of South American countries such as Brazil and Mexico found themselves in a financial crunch. The countries had borrowed heavily for industrialization programs but, were unable to pay back their loans due to the escalating interest rates. The debt crisis truly began when creditors came to realize that the countries were in no position to repay there loans (Ocampo, 2009, pg.718). Lending rates were tightened and no more lending was done unless with very strict terms that had to be met. Various counties found themselves facing economic bubbles with analyst claiming that the bubbles could not be expected and bursting them would result to a financial meltdown. Bubbles are only identified in form of a metaphor when there is an abrupt drop in trading prices. This is where various commentators identified overseeing countries deciding to endure the rapid drop in their profit margins to ensure maintenance of capacity (Buxton & Chapman, 2005, pg.87).
• The concept is mainly identified with debt deflation where analysts portray bursting the bible would cause a destruction of large sums of money leading to inflation. The purchasing power reduced considerably and people are unable to buy commodities in the market. However, overseas nations maintained their prices, which at the time was not profitable. This was meant to retain the purchasing power of consumers and control the rate of unemployment. Interest rates at the time were high so these nations reduced their borrowing capacities and at the same time had to manage with the Gross National Product their country could generate. The state relied on using fiscal policies that mainly included government expenditure and taxation to control the overriding economic situation (Labonte& Makinen, 2005, pg.9).
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• At the time, aggregate demand for commodities had reduced considerably and the government had to take necessary steps of increasing their expenditures while reducing taxation on commodities to increase the purchasing power of consumers. This move had the effect of providing financial assistance to various banks and companies to prevent them from collapsing and help them remain afloat. Reduction of tax on consumable goods kept manufacturers from raising their prices. Prices of commodities would be taken to be low considering the current economic climate. Consumer purchasing power was maintained and this helped to stabilize the rate of unemployment in the country as manufactures eased on downsizing, which according to (Taylor, & Weerapana pg175 2009) was a measure meant to cut down cost to save on profits. To adapt to the economic downturn, most nations changed their trade strategy and favored on adopting the strategy that was more export oriented rather than relying on imports.
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• An economic recession was characterized by a decrease in the nation’s Gross Domestic Product, opportunities for employment, rate of investment, and profits generally fell, while many businesses went bankrupt and unemployment rates shot off the roof. A country’s economic situation is supposed to have the household sector saving the income they receive, while the corporate sector should act as economic borrowers where both sectors are expected to operate in a balanced form. When there is an imbalance in the sectors, an economic recession sets in the country. Various policies are taken to return the sectors back to their balanced state (Nanto, 2009, pg.50). The government used budget surplus intended to control inflation. This move helped to reduce supply shock that came about when the prices rose leading to the supply of those commodities reducing. The nations went ahead to take corrective steps to keep their economies afloat.
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• Such precautionary and economy saving policies taken during the period of economic recession, largely affected the latter measures taken by Great Britain after economic recovery. Britain was also affected by the economic recession that affected the nations in the early 1980s. Unemployment had continued to increase, businesses collapsed and the government had to come up with a bailout scheme meant to rescue the country from a financial meltdown. When Margaret Thatcher, the leader of the conservative party, was elected into power to replace the outgoing Labour party in 1979, the unemployment rate was at an all time high and inflation had reached 10% (Buxton & Chapman, 2005, pg. 120).
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• The current government sort to control the high levels of inflation through carious monetary policies meant to keep prices level stable. The government reduced the powers borne on trade unions to control the rampant strikes that had hit the country during recession. The government under the leadership of Margaret Thatcher helped to stabilize the economy by reducing the level of inflation from 10% to 4% by 1984. Strikes reduced significantly during that period. The government first started by getting rid of companies that were underperforming and constantly needed bailout money from the government. Britain later started to import a hoard of commodities from other counties since a large number of industries had been wiped out (Buxton & Chapman, 2005, pg.128).
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• During the economic boom, Britain did not take advantage of the rising economy by increasing value added, as the government wanted the economy to completely recover. Unemployment had risen to an all time high of 3,000,000 people due to the closure of the various industries. It was paramount that the businesses that had collapsed be revived to reduce the level unemployment in the country. According to (Buxton & Chapman, 2005, pg.213), the government failed to raise taxes on commodities that were fairing well so that their prices may not rise, this enabled all citizens have high purchasing power over good offered in the market. In time, the economy stabilized and the market grew to accommodate other types of trade to take place.
• References
  
• Armstrong, H, Taylor, J & Blackwell, W 2005, Regional economics and policy, pg 54-237,           Blackwell publishers inc, Massachusetts.
• Buxton, T & Chapman, GP 2005, Britain's economic performance, 2nd edition, Routledge.         New York.
• Hunt, BEK & Lautzenheiser, M 2011, History of Economic Thought: A Critical Perspective,        3rd addition, M.E. Sharpe, New York.
• Taylor, BJ & Weerapana, A 2009, Principles of Economics: Global Financial Crisis,6^th      Edition, Cengage Learning, Boulevard.
• Black, KW 2007, The Savings and Loan Crisis and its relationship to banking: An Examination    of the Banking Crises of the 1980s and Early 1990s, History of the eighties- lessons for       the future, Volume I, pgs 171-188.   
• Labonte, M & Makinen, G2005, The Current Economic Recession: How Long, How Deep, and How Different From the Past?, CSR Report For Congress, Vol 1, pg 4-17.
• Nanto, KD 2009, The Global Financial Crisis: Analysis and Policy Implications. Congressional Research Service. Vol 1, pg 4-65.
• Ocampo, AJ 2009, Latin America and the global financial crisis. Journal of Economics, Vol 3,      pgs 703–724.