Professor Richard Rumelt, from UCLA Anderson School of Management, wrote in ‘ Good Strategy – Bad Strategy‘: However, in every case, there is a clear correlation with house-price boom-bust cycles. Since the middle of the last century, credit crunches have struck more frequently.Įconomists say it is impossible to predict when a severe lending contraction will occur. “It is intertwined with the growth of the subprime mortgage market in the United States – which offered nonstandard mortgages to individuals with nonstandard income or credit profiles – but it is really a crisis that occurred because of the mispricing of the risk of these products.” “The 2007-08 credit crunch has been far more complex than earlier crunches because financial innovation has allowed new ways of packaging and reselling assets.” However, as you can see in the quote below, the US Federal Reserve saw it as a credit crunch.Īccording to a Federal Reserve Bank of St. Many economists say that was what occurred in 2007/2008. A depression is a severe economic downturn that continues for over three years.Ī ‘ credit squeeze’ is a milder version of a full-blown credit crunch. It refused to liquefy markets, and thus triggered deflation. This occurred in the Great Depression.ĭuring the Great Depression, the Federal Reserve reduced the money supply after the 1929 Wall Street Crash. This reduction in the availability of credit may prolong an economic recession. “A period during which there is a sudden reduction in the availability of credit from banks and other lenders.” Banks focus on lending to those who least need to borrow.Ĭentral banks attempt to counter this risk-aversion by reducing interest rates to stimulate money markets.Īccording to Collins Dictionary, a credit crunch is: Ironically, during a credit crunch, those that continue finding it easy to borrow don’t need loans.ĭuring a credit crunch, people and businesses that need help find it much harder to get loans. Small-to-medium size companies also suffer. When this occurs, lower-income and middle-class individuals lose out. Their focus shifts to quality rather than quantity. This is due to either political problems or adverse economic conditions.ĭuring a credit crunch, lenders become much more selective about who they lend to. Both individuals and companies notice the change.īanks become reluctant to lend because of the greater risk of defaults. In other words, the availability of credit falls whether interest rates rise or stay the same.īanks and other creditors become reluctant to lend money during a credit crunch. The decline in the availability of credit occurs regardless of interest rates. We also use the term when it suddenly becomes more difficult to get a bank loan. Since Churchill was influential and widely reported, it is believed that the phrase “comes to the crunch” is a direct derivative of earlier versions of his mode of speech.A credit crunch, credit crisis, or credit squeeze occurs when the general availability of credit declines considerably. The Daily Telegraph reported him in 1939, when he said that the chance for Spain to find its way back to health and sanity would mostly depend on how the outcome of the European crunch turned out. The crunch is a noun that is not used often, but its memorable usage is by Winston Churchill, who liked to use it in his descriptions of challenges. It was used to describe people holding government bonds. The phrase is not as old as it might appear, since its first recorded use was in July 1960 in The Times. She promises help, but when the crunch comes, she invents excuses. She always threatened to leave him, but she did not have the courage when it came to the crunch.If it comes to the crunch and you get divorced, you can always stay with us.Some issues are deemed more critical when it comes to the crunch.I’m ready to resign due to this if it comes to the crunch.when a difficult situation cannot be avoided anymore.when immediate or decisive action is necessary.when people find themselves in a tight corner.when a situation gets very serious, and there is a need for a decision.being in a situation where you are at a very difficult or important point where a decision of how to move on must be made.finding oneself at a decisive point where the course of one’s life is determined.in a critical moment or crucial time, or in a tight corner.
0 Comments
Leave a Reply. |
AuthorWrite something about yourself. No need to be fancy, just an overview. ArchivesCategories |