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In the spring of 1987, the Democrats believed that there was reason for optimism for the following year. President Ronald Reagan , though still immensely popular with the American public, was presiding over a somewhat tarnished administration. The Iran-Contra affair had sent shockwaves through Washington; economic prosperity appeared to be threatened; and, as a two-term president, Reagan was barred from running again. None of the speculative successors—chief among them, Vice President George H. W. Bush, Senator Bob Dole, former Delaware governor Pete du Pont, or Congressman Jack Kemp—had the affability, ease when dealing with the public, and sheer charismatic presence of the “Great Communicator.”

Early in the 1980’s, the U.S. Congress passed two pieces of legislation that represented the most significant movement toward depository institution reform since the 1930’s. The Depository Institutions Deregulation and Monetary Control Act of 1980 (DIDMCA) and the Garn-St. Germain Depository Institutions Act of 1982 signaled the resolve of two presidential administrations to create a financial marketplace that would be more adaptable to changing economic conditions.

Sustained declines in economic activity lasting six months or longer. There were two recessions during the 1980’s. The first occurred from January to July, 1980. The second began in July, 1981, and lasted through November, 1982. Following a period of little economic growth in 1979, overall economic activity declined in early 1980. Because of the high rate of increase in consumer prices (inflation), the Federal Reserve imposed severe restraints on the availability of credit. Partly as a result, interest rates rose rapidly to peaks of 14-20 percent in March and April, 1980. Consumer spending fell drastically and gross national product declined at a 10 percent annual rate in the second quarter of 1980. When the Federal Reserve became aware of the negative economic impact of very high interest rates, it removed the credit constraints beginning in May, 1980. The decline in economic activity came to an end in July, 1980, and for the remainder of the year retail sales (including automobile expenditures) and home construction gradually increased. Because the recession lasted for only six months, its overall impact was moderate. For example, industrial production declined 8.5 percent and unemployment rose by two percentage points. Of the seven post-World War II recessions up to that time, the 1980 recession had the smallest effect on the economy as a whole.

President of the United States (1981–1989). Reagan stemmed the general feeling of instability that surrounded the office of the US president. Almost by sheer personality and by exuding an enormous self-confidence, Reagan reversed many of the negative images of the office. His tenure was marked by economic recession and recovery, problems of unemployment, complicated foreign affairs, a foreign policy scandal, expanding American military buildup, and silence regarding HIV-AIDS. However, his optimism appealed to voters and his conservatism produced a number of programs that changed American government in fundamental ways.

By the 1980 election cycle, the American electorate had grown weary of pessimism engendered by defeat in Vietnam, the failures of the Great Society programs of the 1960’s, the federal scandals of the 1970’s, fear of the Soviet Union, and disastrous foreign and economic policies of the Jimmy Carter administration. Ronald Reagan ran on two optimistic principles—economic recovery and revitalization of U.S. military strength—and handily defeated Carter. Reagan’s young administration quickly began reshaping U.S. policies. Economic growth meant lowering tax rates and reducing government spending and regulation, both conservative goals that would create free market prosperity and lead to “smaller government,” a program often called Reaganomics .