Why Did The United States Raise The Interest Rate In 1979

In 1979, the United States Government created a campaign to help control the growth of inflation, which at the time was a threat to the nation's economy. By raising interest rates, however, this created a debt crisis that affected the global economy and spurred global economic inequality. At the same time, by raising the interest rates in the United States, inflation in the nation was put under a degree of control. Moreover, the reason the United States government decided to raise the interest rates was in response to the rise in prices for natural needs such as food, oil, manufactured goods, and basic materials. Schaeffer notes, “Prices rose 13.3 percent in 1979 and 12.4 percent in 1980 (Schaeffer, 16).” Inflation was deeply feared as it was …show more content…
The first condition was that the debtors governments would take responsibility of repaying back all loans, which can be either private or public so Wester banks can become whole again. The second condition was that they increase their income from commodity exports and reduce their spending on imported goods so they would have enough money to repay back their loans. The third condition was that the government raise taxes and cut back on social spending so they would have enough to pay back their debt. The fourth condition makes the recommendation to governments to sell or privatize their state assets and take the earnings and pay back their debt. Finally, the IMF asked governments to reduce tariffs to promote ‘free trade’. As a result of all of these complicated conditions imposed on U.S. debtors. Debtors worked tirelessly to pay off their loans, consequently, their debt grew and they borrowed more money from the United …show more content…
There was a recession caused by the rise in interest rates, a social security crisis, and growth in U.S. trade deficits. Ronald Reagan tried to solve all of these issues separately, however, this gave way to a new type of growth on Wall Street, where foreign and domestic investors were enthusiastic about buying new stock. The Social Security Crisis was caused by former President Richard M. Nixon, who raised social security benefits and raised the ‘cost-of-living adjustment’, which eventually led to the U.S. spending about $15 billion on social security, which has a significant impact on the U.S. economy. Ronald Reagan makes an attempt to fix the crisis by imposing payroll taxes and curbing cost-of-living. This, in turn, raised social security and solved the crisis. However, this caused workers to quickly take the advantages of retirement and many workers took out IRA's plans in 1981. The economic recession that was caused by the rise of interest rates still affected the United States by then, and many Americans were buried in debt or were laid off from their jobs. Reagan's solution to this issue was to cut taxes for wealthy Americans. He thought this would encourage the wealthy to invest more into their income which as a result would create more jobs, improve the economy, and reduce the national debt. These tax cuts encouraged wealthy families to invest in the stock