Author: Enterprising Investor Forum | Posted: 31-08-2007
Everyone is talking about this ‘Credit Crunch’ but what exactly do they mean? What are they referring to?
Basically, it refers to a specific period when capital is difficult to obtain and hence people also talk about liquidity drying up. In this specific economic period, which is considered to be recessionary, banks and investors are very hesitant to lend out any funds and therefore the price of debt products keeps on moving up.
Due to this drying up of liquidity and increased cost of capital, it becomes more and more difficult for companies, institutions and/or individuals to borrow new funds. Not only can this result in halting growth, payment defaults and increased bankruptcies but it can have a devastating ripple effect on the whole economy.
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