Credit Crunch and Credit Cycles

Credit cycles are an unavoidable result of reckless growth in credit markets, magnified by dangerous and inadequate central bank policy, causing interest rates to stay artificially
 low for sustained periods. This leads to speculative market bubbles, characterised by a reduction in savings and excessive credit growth. When interest rates remain too low for too long, the excessive credit growth results in an unstable and volatile imbalance between investment and saving. Low interest rates encourage borrowing, and the expansion of credit results in an expansion of the money supply due to the money creation process inherent in fractional reserve banking. This causes an unsustainable credit boom where the excessive easy credit seeks out new and increasingly risky investment (or malinvestment) opportunities.

A credit crunch then becomes inevitable when…..

Continues here….. The Credit Crunch