Can't you borrow against relatively illiquid assets though? Like a house? It's only when you max out the line on those that you might hit a liquidity crunch

A house is a liquid asset outside of rare cases e.g. towns that have been severely hollowed out.

Non-liquid assets are typically small businesses or physical assets with no market. This can be because there are no buyers e.g. there are some asset markets where there might be a single transaction per decade on average. This can also be because there are contractual or statutory restriction on salability, which often extend to use of the asset as a security for credit purposes.

Another common reason is that the value of the asset is inextricably connected to who owns it. Selling the asset doesn't convey the value because that value is conditional on the current owner owning it, rendering it nearly worthless unless it is never liquidated.