Is "Credit Crunch" a trigger to have one?

Question

You would only have to mention the term "credit crunch" in the future and everyone would panic. How to manipulate the economy.

What we need is to mention a "Credit Boom" surely?

Answer 1

Recession is on its way.

Answer 2

You're right in stating that the Credit Crunch is essentially in the mind. The lenders in this country do not operate as competitors to each other, but more like a cosy cartel, where they are all looking at what everybody else is doing and then ever so slightly beating them on price. This is perhaps because they have a common source of funding, the Money Markets in the City.

The flaw in your argument is that the term Credit Crunch was invented after the event and is thus an effect, not a cause. Therefore walking around talking about a "Credit Boom" will not cause one.

Answer 3

I'm not sure that the credit crunch can be purely put down to people taking about it then panicking.

After all there is a very real reason why we are having a credit crunch.

Banks lent lots of money to people who were a high risk. Then when these people are unable to repay the loans the banks lose lots of money. So the banks suddenly panic and tighten up on their lending. This means that many people can no longer get big enough mortgages to buy houses at their current prices.

We have had a credit boom and this is exactly why we are now having a credit crunch.

I do agree though that a lot of what goes on in financial circles is driven by rumour and panic rather than reality.