One fall day in 2008 it was if the world had stopped turning as economies around the world ground to a halt and the flowing taps of credit dried up faster than a beer at a NASCAR race. It was if suddenly, and with no warning, all of the liquidity in the worlds market has simply…
The US seemed to have the biggest problems, if only by the sheer magnitude of their economy and its impact on other nations around the world. Still, Great Britain felt the shock and their economy suffers many of the same ills as the system has stagnated with the same symptoms. Though the political leaders portrayed the problem as an emergency that suddenly erupted, it was actually the culmination of years of under-regulation, neglect, abuse, and corruption. The credit crisis in the United Kingdom has come about as a result of over-extended consumer credit and a banking system that has exploited the concept of free market economics.
To understand the vulnerabilities in the global banking system it is helpful to understand some of the history that got it where it is today. Six hundred years ago the population of England was largely agrarian and lived as subsistence farmers. Wages earned came almost exclusively from farm labor and were very sensitive to the law of supply and demand. When times were good, the population rose and the labor supply increased. This drove down farm wages and the resulting poverty would decimate the population. As the labor supply fell, wages increased again and the cycle repeated. In fact, the real wages earned in 1740 were the same as the wages earned in 1400 (Khan 10). However, the Industrial Revolution created a larger demand for labor and created concentrated centers of capital. Technological advancements contributed to the growing economy and real wages have risen by approximately 2200 percent in the 200 years since the turn of the 19th century (Khan 10). The escalating wage scale and the concentrated capital resulted in an economy that was ever more dependent upon credit and increasingly demanding consumer goods. According to Khan, "in the 19th century, a steady rise in living standards began that has, in some sense, never ceased. As a result, ...
Cite this document
(“Credit Crunch Uk Essay Example | Topics and Well Written Essays - 2000 words”, n.d.)
Retrieved from https://studentshare.net/miscellaneous/357613-credit-crunch-uk
(Credit Crunch Uk Essay Example | Topics and Well Written Essays - 2000 Words)
“Credit Crunch Uk Essay Example | Topics and Well Written Essays - 2000 Words”, n.d. https://studentshare.net/miscellaneous/357613-credit-crunch-uk.
These concepts, methods, processes and trends of the profession are described in sections 3.1 to 3.4 and the results of the literature review are concluded in section 3.5 3.1 DEFINITION OF THE CREDIT CRUNCH A credit crunch is defined by Bernanke and Lown (1991) as a decline in the supply of credit that is unusually large for a given phase of the business cycle.
The major causes could be termed as excessive liquidity, excessive lending, excessive leverage and excessive risk taking by the banks and other financial institutions. The global credit crisis posed a greater threat to UK Economy. It is estimated that almost 20,000 people will be losing their jobs alone in London's Financial Service Industry.
Credit normally contracts during a recession, but an unusually large contraction could be seen as a credit crunch. In their analysis, Bernanke and Lown compare the contraction in credit during the most recent recession to those in the previous five recessions.
Simply speaking credit crunch means an economic crisis when banks are very cautious about lending money to customers or each other. It is a situation where there is excess demand for credit on the prevailing interest rates. One can also interpret credit crunch as a situation when credit is rationed because of factors other than price mechanism.
redictions and warnings of Goldman Sachs of the severe adverse effects of the global credit crisis on the economy of UK, which was predicted to be worst hit due to its heavy reliance on financial services, house prices declined for the first time since 1996. This has led the
This factor has been and will continue to be one that triggers international financial incidents, and in some cases they may result in what are termed as a crisis. A crisis is defined as “…an unstable or crucial time or state of affairs in which a
Credit crunch is marked by decreased corporate cash flows that lead to an increased demand for funds to perform the expenditure of companies, as in the case of a decrease in personal savings that will lead to an increased requirement for funds to run a household.
In such condition, the connection between the interests rates and the availability of credit has unconditionally changed in such a manner that either the loan is fundamentally less than any quoted formal rate of interest or there stops to be a precise
10 Pages(2500 words)Essay
GOT A TRICKY QUESTION? RECEIVE AN ANSWER FROM STUDENTS LIKE YOU!
Let us find you another Essay on topic Credit Crunch Uk for FREE!