Credit crunch
A credit crunch is a sharp contraction in lending *supply* — banks pulling back not because borrowers don't want loans, but because lenders are impaired, scared, or capital-constrained. Demand may be there; the money isn't.
How it compounds a downturn
Healthy slowdowns self-correct: demand dips, rates fall, activity rebounds. A crunch breaks that loop — creditworthy firms can't roll debt, households can't get mortgages, and viable businesses die for lack of liquidity rather than lack of demand. It's the mechanism that made 2008–09 severe rather than ordinary.
How we detect it
Direct measures: the SLOOS lending-standards survey captures banks tightening credit before volumes collapse. Indirect measures: credit spreads and the NFCI price the market side of the same phenomenon. The 1990–91 recession is the clean historical example — a bank- and S&L-driven crunch with the curve only mildly inverted.