This week's crisis on Wall St is a direct consequence of the huge expansion in credit during the past 30 years. Far too much money has been lent to individuals who cannot service their debts.

The massive growth in United States debt is reminiscent of the 1920s but there is unlikely to be a repeat of the 1930s depression because monetary authorities are now in a much better position to deal with a major financial crisis.

Nevertheless, recent developments will have a major impact on the world economy, finance sector regulation and, more importantly, our attitude to debt.

The 1920s was a period of incredible prosperity and confidence, coinciding with the introduction of several mass-produced items, including cars, radios and refrigerators.

US credit expanded dramatically from about 175 per cent of GDP in 1920 to 300 per cent just after the 1929 Wall St crash. A large proportion of the borrowings were used to buy shares.

In the four months after the 1929 crash, the Federal Reserve lowered interest rates from 6 to 4 per cent but became hopelessly indecisive after its February 1930 rate cut.

The Fed reduced the sums it pumped into the system and raised interest rates twice during the 1932 banking crisis. Republican President Herbert Hoover continued to support a balanced budget strategy and believed Government support for the economy was unnecessary.

Not surprisingly, he was trounced by Franklin D. Roosevelt in the 1932 presidential election.

Credit contracted sharply after the 1929 crash, with US money supply falling 31 per cent between 1919 and 1933 as the world economy endured a once-in-a-lifetime depression.

It took nearly 20 years before the deleveraging was completed and the total US debt to GDP ratio stabilised below 150 per cent. Not surprisingly, there was a strong aversion to debt from 1950 to 1980: memories of the 1920s and 1930s were still fresh.

But the appetite for debt increased in the 1980s as the 1930s depression was forgotten. Companies started borrowing but individuals picked up the momentum after the 1987 worldwide sharemarket crash when many companies collapsed under the weight of too much debt.

Personal debt has soared in recent years, mainly to finance house purchases.