A credit crunch also known as a credit squeeze or credit crisis is a sudden reduction in the general availability of loans or credit or a sudden tightening of the conditions required to obtain a loan from banks.
In such situations, the relationship between credit availability and interest rates changes. Credit becomes less available at any given official interest rate, or there ceases to be a clear relationship between interest rates and credit availability i.
Many times, a credit crunch is french market liquidity credit crunch by a flight to quality by lenders and investors, as they seek less risky investments often at the expense of small to medium size enterprises. A credit crunch is often caused by a sustained period of careless and inappropriate lending which results in losses for lending institutions and investors in debt when the loans turn sour and the full extent of bad debts becomes known.
There are a number of reasons why banks might suddenly stop or slow lending activity. For example, inadequate information about the financial condition of borrowers can lead to a boom in lending when financial institutions overestimate creditworthiness, while the sudden revelation of information suggesting that borrowers are or were less creditworthy can lead to a sudden contraction of credit.
Easy credit conditions sometimes referred to as "easy money" or "loose credit" are characterized by low interest rates for borrowers and relaxed lending practices by bankers, making it easy to get inexpensive loans. A credit crunch is the opposite, in which interest rates rise and lending practices tighten.
Easy credit conditions mean french market liquidity credit crunch funds are readily available to borrowers, which results in asset prices rising if the french market liquidity credit crunch funds are used to buy assets in a particular market, such as real estate or stocks.
In a credit bubble, lending standards become less stringent. Easy credit drives up prices within a class of assets, usually real estate or french market liquidity credit crunch. These increased asset values then become the collateral for further borrowing. This can then cause a speculative price " bubble " to develop. As this upswing in new debt creation french market liquidity credit crunch increases the money supply and stimulates economic activity, this also tends to temporarily raise economic growth and employment.
Economist Hyman Minsky described the types of borrowing and lending that contribute to a bubble. The "hedge borrower" can make debt payments covering interest and principal from current cash flows from investments. This borrower is not taking significant risk. However, the next type, the "speculative borrower", the cash flow from investments can service the debt, i.
The "Ponzi borrower" named for Charles Ponzisee also Ponzi scheme borrows based on the belief that the appreciation french market liquidity credit crunch the value of the asset will be sufficient to refinance the debt but could not make sufficient payments on interest or principal with the cash flow from investments; only the appreciating asset value can keep the Ponzi borrower afloat.
Often it is only in retrospect that participants in an economic bubble realize that the french market liquidity credit crunch of collapse was obvious. In this respect, economic bubbles can have dynamic characteristics not unlike Ponzi schemes or Pyramid schemes. These and other cognitive biases that impair judgment can contribute to credit bubbles and crunches. The crunch is generally caused by a reduction in the market prices of previously "overinflated" assets and refers to the financial crisis french market liquidity credit crunch results from the price collapse.
In contrast, a liquidity crisis is triggered when an otherwise sound business finds itself temporarily incapable of accessing the bridge finance it needs to expand its business or smooth its cash flow payments.
In this case, accessing additional credit lines and "trading through" the crisis can allow the business to navigate its way through the problem and ensure its continued solvency and viability.
It is often difficult to know, in the midst of a crisis, whether distressed businesses are experiencing a french market liquidity credit crunch of solvency or a temporary liquidity crisis.
In the case of a credit crunch, it may be preferable to " mark to market " - and if necessary, sell or go into liquidation if the capital of the business affected is insufficient to survive the post-boom phase of the credit cycle. In the case of a liquidity crisis on the other hand, french market liquidity credit crunch may be preferable to attempt to access additional lines of credit, as opportunities for growth may exist once the liquidity crisis is overcome. Financial institutions facing losses may then reduce the availability of creditand increase the cost of accessing credit by raising interest rates.
In some cases lenders french market liquidity credit crunch be unable to lend further, even if they wish, as a result of earlier losses. If participants themselves are highly leveraged i. Financial institutions may fail, economic growth may slow, unemployment may rise, and social unrest may increase.
In recent decades credit crunches have not been rare or black swan events. Although few economists have successfully predicted credit crunch events before they have occurred, Professor Richard Rumelt has written the following in relation to their surprising frequency and regularity in advanced economies around the world: From Wikipedia, the free encyclopedia. For information about the most recent credit crisis, see — global financial crisis.
The Grip of Death: The Origin french market liquidity credit crunch Financial Crises. Retrieved 1 June Automotive industry crisis California budget crisis Housing bubble Housing market correction Subprime mortgage crisis. Government policy and spending responses. List of banks acquired or bankrupted during the Great Recession. Auction rate securities Collateralized debt obligations Collateralized mortgage obligations Credit default swaps Mortgage-backed securities Secondary mortgage market.
Tea Party protests United States; c. European debt crisis Financial crisis of —08 List of countries by public debt. Retrieved from " https: Views Read Edit View history. This page was last edited on 29 Septemberat By using this site, you agree to the Terms of Use and Privacy Policy.
2011 Forex EA Forum so the minimum expected from a Forex Robot is to keep trading along the day as if you are setting performing your. Collumns 52:2209. Since itвs still a robot we also want to control it a bit simply to prevent our robot overlords from taking over.