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| A "credit crunch" is a ]ary period in a ] where growth in debt has slowed and subsequently causes a drying up of ] in an economy. It is often caused as result of lax and innapropriate lending, which results in losses for lending institutions and investors in debt. These institutions may then reduce the availability, |
A "credit crunch" is a ]ary period in a ] where growth in debt has slowed and subsequently causes a drying up of ] in an economy. It is often caused as result of lax and innapropriate lending, which results in losses for lending institutions and investors in ]. These institutions may then reduce the availability, and ease of obtaining credit, and increase the cost of accessing credit by raising ] for fear of further losses. In some cases lenders may be unable to lend further, even if they wish, as a result of earlier losses restraining their ability to lend. | ||
| A credit crunch is the opposite of cheap, easy and plentiful lending practices (sometimes referred to as "]" or "loose credit"), the likes of which have been seen around the world, particularly between 2002 and 2007. During this phase in the ] asset prices experience bouts of ] and a ] can develop in a particular asset market. When new ] cannot be found to purchase at the inflated prices, a collapse in the price of the asset can occur, along with a dramatic reduction in ] in that market. This can then cause widespread ], ] and ] for those borrowers who came in late to the market. This can then damage the ] and ]ability of the ], resulting in a dramatic reduction in new lending. This in turn results in a reduction in the growth of the ], often referred to as a "drying up of ]." | |||
| A credit crunch is the opposite of cheap, easy and plentiful lending practices, the likes of which have been seen around the world, particularly between 2002 and 2007.. | |||
| A reduction in the growth of the ] caused by a credit crunch can ] marginal borrowers and threaten the ] of marginal lenders, thereby triggering a ] or in severe cases, a ]. | |||
| The 2007 ] may have brought about a credit crunch. | The 2007 ] may have brought about a credit crunch. | ||
Revision as of 08:21, 6 September 2007
A "credit crunch" is a recessionary period in a debt-based monetary system where growth in debt has slowed and subsequently causes a drying up of liquidity in an economy. It is often caused as result of lax and innapropriate lending, which results in losses for lending institutions and investors in debt. These institutions may then reduce the availability, and ease of obtaining credit, and increase the cost of accessing credit by raising interest rates for fear of further losses. In some cases lenders may be unable to lend further, even if they wish, as a result of earlier losses restraining their ability to lend.
A credit crunch is the opposite of cheap, easy and plentiful lending practices (sometimes referred to as "easy money" or "loose credit"), the likes of which have been seen around the world, particularly between 2002 and 2007. During this phase in the credit cycle asset prices experience bouts of hyperinflation and a bubble can develop in a particular asset market. When new borrowers cannot be found to purchase at the inflated prices, a collapse in the price of the asset can occur, along with a dramatic reduction in liquidity in that market. This can then cause widespread insolvency, bankruptcy and foreclosure for those borrowers who came in late to the market. This can then damage the solvency and profitability of the banking system, resulting in a dramatic reduction in new lending. This in turn results in a reduction in the growth of the money supply, often referred to as a "drying up of liquidity."
A reduction in the growth of the money supply caused by a credit crunch can banktupt marginal borrowers and threaten the solvency of marginal lenders, thereby triggering a recession or in severe cases, a depression.
The 2007 subprime mortgage financial crisis may have brought about a credit crunch.
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