Former chairman of the US Federal Reserve Ben Bernanke sums up the prevailing wisdom when he notes that economic recoveries don’t die of old age, they are murdered by central banks overtightening credit. Given the worst performance for US equities in December since 1931, the flattening of the yield curve (which plots government bond yields of different maturities on a single graph) and the rise in volatility, many investors seem to have decided the culprit in this game of Cluedo is Mr Fed, on the trading floor, with quantitative tightening.

I think they have got the crime, the accused and, especially, the weapon wrong. Traders complain that QT is causing a liquidity squeeze that will choke off growth. But we should be specific about what kind of liquidity we are really worried about.

Market liquidity is the ability to buy and sell assets easily. Funding liquidity is the ability to find cash to meet your obligations. In 2008, for example, Bear Stearns and Lehman Brothers were victims of an extreme funding liquidity crunch. While tight market liquidity eats into company margins, tight funding liquidity poses an existential threat to the entire financial system.