In the 1970s, the United Kingdom and Iceland had a falling out over fishing rights.

Although Britain was then in the right, most Britons were rather embarrassed by the “Cod War”.

Today, Britain is entirely in the wrong, misusing anti-terror legislation to seize Icelandic assets in the UK. The British government is bullying the small nation in an attempt to get compensation for British depositors in failed Icelandic banks that goes beyond anything that the government guarantees depositors in Britain’s own banks.

Adding insult to injury is the fact that the Draconian laws being used against Iceland – a longstanding NATO ally – were approved only on the understanding that they would be used only against terrorists.

This could be the start of the most dangerous phase of the cash crisis.

Remember that the Great Depression was triggered not so much by the Wall Street Crash as by the panic reaction that followed, the trade wars caused by governments putting up tariff walls to protect perceived national interests.

If governments start undermining free trade – and inviting retaliation – they actually undermine their real national interest. If the British government is taking the first step in that direction, it could start the cycle that turns recession to depression.