Mark Pingle, an economist at the
University of Nevada, Reno, thinks this economic
downturn is likely to look a lot like the
recession of 1980-1982.
If that's the case, veterans of the early
1980s downturn say, hold on for a long, tough
ride.
And some of the folks who remember the
recession of 1982 think things look even worse
this time around.
First, here's the thinking of Pingle and
other economists at UNR:
Though many of today's business owners
and managers were only children during the
1980s recession, historians remember it as the
longest and deepest downturn since the Great
Depression. It lasted 30 months, from April
1980 through October 1982.
Like today's recession, Pingle says, it was
preceded by a sharp spike in oil prices in
the 1980s, as the result of the Iranian
Revolution in 1979.
And, like today, the 1980s recession was
particularly hard on borrowers and financial
institutions. In an effort to break the back of
inflation, then-Federal Reserve Chairman Paul
Volker ran interest rates up to record levels.
For four months in mid-1981, the prime
rate the rate that banks charge their best borrowers didn't dip below 20 percent for
even a single day. At the prime rate would
stay above 10 percent until the middle of
1985.
The effects were brutal on the real estate
and construction industries.
"Those were difficult times for the community,"
says Marti Allison, who has worked
in real estate sales in the Reno area since the
1970s.
The downturn of the 1980s was particularly
painful, she says, because northern
Nevada residents had convinced themselves
the region was largely immune from national
economic woes.
As mortgage loans settled into the range
of 14 percent to 16 percent, real estate agents
began looking for creative solutions, says
Rick Lund of Ferrari-Lund Real Estate. A
common answer was an agreement by a seller
to provide financing to the borrower or some
sort of creative loan that blended an existing
low-rate mortgage with higher-priced new
money.
Ironically,Allison says, one of the answers
that lenders developed in those days
adjustable-rate mortgages ultimately
became a significant cause of today's downturn.
Jerry Gregory, a senior vice president and
northern Nevada regional manager for City
National Bank, worked in the early 1980s as a
young banker who made lots of construction
loans.
Once the economy turned, he found himself
working closely with borrowers who didn't
know how they'd be able to repay the
money they'd borrowed.
"I sweated bullets for a really long time,"
Gregory recalls.
The trouble spread through the northern
Nevada economy. The number of employed
people in the region fell by 4.8 percent
between 1981 and 1983. (The most recent
state employment figures show Washoe
County employment has declined by 2.5 percent
since the onset of the current downturn
about a year ago.)
Nevada's unemployment rate, which stood
at 7.1 percent in 1981 a figure roughly
comparable to today's 7.6 percent spiked
to 10.1 percent in 1982.
Sales tax collections in Washoe County
fell by more than 7 percent from 1981 to the
bottom of the recession in 1982 and 1983.
That's about the same as declines in taxable
sales activity in Washoe County during
the current downturn.
Gregory, however, doesn't think the parallels
to the early 1980s make sense.
"There's no comparison to what we're
going through," the banker says."We've never
seen this kind of recession. This is the widest,
deepest recession of any I have experienced
in my lifetime."
The current housing crash alone, he says,
far exceeds the downturn of a quarter century
ago.
But veterans of that downturn note, too,
that they survived the 1980s recession and
came out stronger for the experience.
"People who live carefully and didn't live
beyond their means were able to wait it out,"
says Allison."We learned to be prudent."
Some business leaders, meanwhile, got
proactive about diversifying northern
Nevada's economy to help smooth out future
bumps. Their efforts led to the creation of the
Economic Development Authority of Western
Nevada in 1982.
And then, like now, fear proved a powerful
motivator for many people in business.
Lund, for instance, had been in the real
estate business for only a couple of years
when the economy turned south in 1980
and he knew he didn't want to give up his
new career.
"I had a fear of failure," he says."I knew I
didn't want to go back to being an earlymorning
milkman."
