Credit squeeze (formerly know as a panic)
Posted August 9, 2007 - 20:17 by Philip Brewer
There used to be a particular financial event called a panic. There were two famous ones around the turn of the last century: the panic of 1893 and the panic of 1907. A panic worked like this: Everything would be going along fine until something produced a lack of confidence, at which point people would take their paper money to the bank to exchange for gold. The banks, after paying out large amounts of gold, would be unable to make ordinary loans. With credit restricted, business began to grind to a halt--manufacturers couldn't borrow to buy raw materials, retailers couldn't borrow to take delivery of goods for sale, farmers couldn't borrow to buy seed, etc.
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