IS IT POSSIBLE TO AVOID YET ANOTHER CREDIT CRUNCH

Question no 2

Introduction

Credit Crunch means

Credit crunches are usually considered to be an extension of recessions. A credit crunch makes it nearly impossible for companies to borrow because lenders are scared of bankruptcies or defaults, which results in higher rates. The consequence is a prolonged recession (or slower recovery), which occurs as a result of the shrinking credit supply.

In a credit crunch, lenders stop lending and start hoarding cash because they are afraid of rising bankruptcies and mortgage defaults. It leads them to charge higher interest rates or reject all but the safest loans.

For an economy that has been fueled by easy access to borrowed money, tighten credit could spell trouble for companies that need loans to pursue their business plans and for consumers who want to buy big-ticket items.

"The credit crisis is all about the consumer and the consumer's ability to purchase things as they have in the past," said Paul Brahim, executive vice president of BPU Investment Management, Downtown.

"The big issue today is if the consumer contracts and stops spending money or depositing money, the economy slows to a halt," Mr. Brahim said.

Normally, banks fear that individuals and business borrowers won't be able to repay them on time.

Now, banks are even afraid to loan to each other because no single bank knows what the other's exposure to the credit crunch really is.

CAUSES OF CREDIT CRUNCH:

Major economic problems such as a credit crunch can be caused by a period of recklessness in the economy.
Typified by an era of low interest rates, very cheap credit, and soaring house prices, irresponsible lending is often the result.
However, once a tipping point is reached, the true extents of bad debts emerge, credit becomes more expensive and house prices tumble, a credit crunch is usually the result.
A credit crunch is usually very bad for businesses, particularly those with high levels of exposed risk to bad debts. Low consumer confidence and lower availability of capital can damage business in almost all sectors.
When a credit crunch becomes serious, credit becomes extremely strained. The companies or institutions that caused the credit crunch in the first place may find it very difficult to survive in this kind of economic climate. When a credit crunch endures for some time, cheap and easy borrowing becomes a thing of the past.
The 2007/2008 credit crunch was caused by sub-prime mortgage lending to poor credit borrowers during the early part of the 2000s.
Massive volumes of bad debt were packaged up and sold internationally, meaning that throughout the world numerous companies had heavy exposure to the sub-prime market.
Once interest rates soared and house prices started to fall, the market quickly collapsed, with financial services companies worldwide at serious risk.

Now question arises can we beat credit Crunch and the answer is

Yes we can beat credit crunch by following ways

• Save on petrol: walk or cycle or use more public transport

You've likely noticed the cost of fuel rising If you're constantly spending on petrol, rethink your transportation choice. Depending on the distance, walk or cycle or use public transport try to complete the many works in one time only

• Eat at home

Avoid the inflated cost of dining out by staying at home. Keep all your meals at home if possible. If you need a lunch for work, bring it with you rather than ordering one.

• Buy food in season

Food that is currently in season is cheapest, so plan your meals accordingly

• Make use of voucher codes & cash back

Many websites online provide its members with downloadable voucher codes and cash back deals. So, the next time you make a purchase online or are looking to go out for a meal, make full use of cash back deals, printable vouchers and restaurant vouchers to save yourself money. for e.g. www.Snapdeal.com or www.ebay.com

• Make a budget

Instead of hoping to get through the credit crunch, make a budget and stick to it. Cut out unnecessary expenses, and save money for emergencies if you can.

• Share with friends

Whether it be books, CDs, DVDs, or a holiday, share the cost with your friends. Pass around books and other entertainment, and go on a shared holiday to keep costs under control.

• Reuse what you have

If you have clothes with holes, mend them instead of throwing them in the rubbish bin. The same goes for take away containers, which you can use to store your own leftovers. If it can be fixed or reused, keep it and find a use for it.

• Keep your home insulated

insufficient insulation could be costing you in heating and cooling bills, so check out your current insulation and add as necessary.

• Cancel useless subscription services

If you have subscriptions that you're no longer using and cannot find a use for, get rid of them. They're just draining money out of your account, which could be better spent elsewhere.

• Do it yourself

If you're employing a maid or a worker, figure out how to do it yourself. You can find a how-to for nearly anything online, so do simple jobs yourself rather than paying someone. Leave more complicated jobs to a professional.
With these simple tips, we can beat the credit crunch.

REFERENCES:
www.wikipedia.com

www.post-gazette.com

www.investopedia.com

Submitted by: - Anshul Jain (MBA 1 - C)

Submitted To: - Prof. Gurdeepak Singh