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The Credit Cruncher was conceived to help you to keep up to date with credit crunch and recession developments, it provides some helpful credit crunch advice and it addresses personal debt. The Credit Cruncher also seeks to explain how the credit crunch started and shed some light on the worldwide recession. Recently, we have begun to look at how BREXIT will affect the UK economy. Please feel free to leave comments where relevant.

31 Aug 2008

There is no Credit Crunch

The Credit Crunch does not really exist because it has not been properly defined.

The economic crisis we find ourselves in is a combination of the collapse of the sub-prime mortgage market in the USA, rapidly rising fuel costs and static wages.
Although you may call it a credit crunch, or any other name, until it is strictly defined, you cannot measure it and therefore you cannot know when the crisis is actually over.

When you listen to people's comments it is obvious that the credit crunch means different things to different people. To some it is about interest rates, to others exchange rates, to many it is the fact that our food and fuel is becoming more and more expensive whilst our wages remain unchanged. All of these are elements of what seems to be a common crisis and what will eventually see us entering a recession. In contrast, a recession is a defined economic term which can be properly monitored, therefore we can know for sure when a recession is over.

The danger of using a loose term is that those using the term will interpret it in different ways. This still happens when the term recession is used, for some they will see it is a time that they lost money on a property, others may see it as signifying job losses. The credit crunch will be blamed for all these things and more, yet what we are really looking at is irresponsible mortgage selling which tipped lending over the edge to the point where debt exchanged hands for more than it was worth. This precipitated by a drop in house prices and coming at a time where we rely far too much on credit and in at atmosphere of rapid inflation. Because it is not defined, the crunch is what you want it to be, you can be sure that the politicians will be exploiting this fact to their own ends time and time again.

Popular Questions:
Will we all end up broke?
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Ross Taylor said...

Don't you think that Credit Crunch is just a euphemism for Recession, conjured up by the politicians to save their bacon?

jay said...

Actually no, I think that the politicians desperately didn't want there to be a crunch and tried to ignore and even fight against it which is why it will hit harder than it would otherwise.
Recession is explained a few posts back, we have not yet entered recession but it is inevitable.