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The term credit crunch is one that many have heard of over the years. For those that are unfamiliar with the term it is a term that refers to the requirements for people to acquire loans from banks have become more difficult to attain. It is also often is reflected by the increase in interest rates. People often make different investment choices at the time of a credit crunch, often choosing safer, less risky types of investments. Many times a credit crunch is caused by banks or other lenders suffering losses, due to their careless or inappropriate lending trends. These often result in the lenders themselves acquiring added debts, as the loans that they have previously given have gone bad. Banks often change the way they lend money. They base it on the value of a person's collateral or other securities that they have in order as to try to insure that they will get the money back that they lend. Sometimes a bad economy will make it so the collateral the person has decreases in value, thus making it necessary for the banks and other lenders to reflect these changes. This is often when we as consumers see the
raising of interest rates. Along with this it also brings along the increase in bankruptcies and foreclosures that are happening around us. Other lenders are sometimes brought to the point that they can no longer lend at all due to changes like these that occur. This is the type of situation that is being brought to light in America right now. With all the job losses and the slowing of the economy, many people are being forced to lose their homes as they can no longer find feasible ways of paying their mortgages. Canada as well is being affected in a similar way. It is a huge problem for the people themselves as well as the lenders, and it is reminder of the Depression era that was experienced many years ago. With a prolonged credit crunch, businesses are often forced into unforeseen situations that often affect the whole nation. The closing of big companies and small as well bring with it the increase in unemployment figures across the country. This in itself slows the economy as people are more wary of their spending habits, tending to be far more cautious. When people are not spending as much it tends to drive the prices of commodities upwards, making things far more difficult all around for everyone. This is why the governments are trying to put money back into the economy, in an effort to stimulate it back to a positive way of being. Credit Crunch |
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