An old adage has it that US economic recoveries never die of old age but are killed off by the Federal Reserve. This belief was clearly a factor in market worries at the turn of the year. Yet as Bradford DeLong of the University of California at Berkeley points out in an article on Project Syndicate, this is plain wrong. Three of the last four US recessions were, in fact, sparked by financial market shocks. The early 1990s recession was a product of the savings-and-loan crisis, while in Europe it resulted from collapsing property markets. The subsequent recession followed the bursting of the dotcom bubble, while the great recession of 2008-2009 came after the collapse of the subprime mortgage market and plunging commercial and residential property prices. Only the extended downturn of 1979-1982 had a conventional cause, reflecting the determined attempt by Fed chair Paul Volcker to eradicate inflation. That is not to say that the markets’ fear of Fed overkill was wholly misconceived...

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