In the old days, from the 19th century through the founding of the Fed in 1912, and modern times until about 2000, U.S. economic cycles were defined by the housing cycle. Big booms and busts they were, and if not quite predictable, certainly a recurrent pattern. Booms led to over-building, lenders with no losses became lazy and eager to lend more and then rates rose and led to the inevitable bust. Then in the ensuing recessions, rates fell and housing was the first sector to awaken and recover. We repeated that same pattern ten times just after 1945, although the Fed moderated each one, usually sawing the top off of the booms to soften each landing before they became dangerous. We began to move out of pattern in the 2001-2002 recession — the first one without a housing bust. The technology and stock market busts were so powerful that they threatened deflation, so the Fed pushed down on rates and kept them there so housing would lead us out. And it did. Then — apologies fo…
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