I’ve dubbed the 9th August, 2007 ‘debtonation day’ – because on that day banks froze lending to each other, central banks panicked and began providing ‘liquidity’ – i.e. new loans to banks in trouble – and the Credit Crunch took hold.

By strange coincidence, it was on the 9th August (see Charles Kindleberger in ‘The World in Depression’) that the Federal Reserve Bank of New York raised interest rates from 5 to 6% – an act that helped precipitate the Great Crash and then the Great Depression.

The Fed had started ‘tightening’ i.e. increasing the real cost of borrowing in 1928, and persisted in this tight monetary policy after the Crash had started. The Fed had been determined to raise interest rates to (finally) prick a bubble of its own creation: the easy credit bubble that fuelled the stock market of the roaring 20s. Taking away the punch bowl by raising interest rates, proved very unhelpful to bankrupts and debtors – of which there were many millions in 1929.
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