Credit Crunch and Its impact on UK's Real Estate Market Dissertation

Credit Crunch and Its impact on UK's Real Estate Market - Dissertation Example Bernanke and Lown (1991) define a credit crunch as a decline in the supply of credit that is abnormally large for a given stage of the business cycle. Credit normally contracts during a recession, but an unusually large contraction could be seen as a credit crunch. The credit crunch is the result of multiple factors. These multiple factors adversely affect the ability of the banks to supply credit at a time when banks’ ability to adjust to these factors was unusually limited. A credit crunch that continues for a long time is actually opposite of easily available and plentiful lending practices .These cheap lending practices are sometimes called â€Å"Easy Money† or â€Å"Loose Credit† .As it been stated earlier that credit crunch is a cyclic process . During the upward phase in the credit cycle it is seen that the prices of the assets undergo lot of fervent competitions .Upward credit cycle is also marked by the presence of leveraged bidding with inflation in a p articular asset market. These all situation can then lead to formation of a speculative price bubble. During the upswing of the cycle increase in the money supply happens because of new large debt creation. This in turn stimulates the economic activities. Finally there is also chances of temporarily raise in economic growth and development.(Cooper,2008) The reason of credit crunch can be diverse. Few of the reasons are given below: 1. If there is an anticipation about the decline in the value of the collateral. The collateral is used by the banks to secure the loans that are taken. If the decline in value continues then it will lead to credit crunch.(Bizer ,1993) 2. If there is perception in the market about the risk of insolvency of other banks in the banking system. In this situation the traditional financial institutes will tighten the credit lending regulations (Kleege and Stephen,1992) 3. When the central government is imposing direct credit controls or are implementing monetar y changes then lending of the loans will be done very warily by the goverment. (Grant,1993) 4. When there is a prolonged carelessness in lending the loans. The process of lending the loans is inappropriate and doesn’t take into account the intricacies of market and interest rate. This leads to losses to the lending institutions. The debtor is not able to pay the debt and finally the financial institutions will reduce the availability of credit. The prolonged defaults by the debtors leads to credit crunch.(Peek ,Joe and Eric,1993). 5.When the assets which were overpriced, before ,suddenly sees a sharp fall in their prices then it leads to financial crisis because of price collapse. If this price collapse continues then many banks and investors will face insolvency and bankruptcy. The financial institutions will become more alert .As the result the financial institution restore to restrict the regulations for lending the loan and as a result the market will face the credit crun ch.( Rosenblum.1991) The last two points were the main reason for the recent credit crunch that struck the world’s economy. This was caused due to the bursting of housing bubble in

Changes in Formerly Communist Nations Essay Example | Topics and Well Written Essays - 1250 words

Changes in Formerly Communist Nations - Essay Example However, the fact of the matter is that the nations which have already been listed had rather developed economies. Due to the fact that the Soviet Union was primarily concerned with its defense against the West, it built up a high level of economic strength, industrial production, infrastructure, and other means of economic development within the nations of Eastern and Central Europe. However, when one considers the level of overall economic development that existed within the remainder of the Soviet Union’s vast empire, the states of Central Asia for instance, it is rapidly understood that as disastrous as the collapse of the Soviet Union was for the individuals living within Eastern and Central Europe, it was in order of magnitude more disastrous for the undeveloped nations within Central Asia. As a function of this, this brief analysis will consider the case of Uzbekistan and trace the hardships that it was forced to face immediately following the collapse of an empire that defined this region for the better part of 60 years (Goff et al, 2008). One of the most powerful effects that the collapse of the Soviet Union had was with regards to the economic integration that had previously existed between the empire. Although the Soviet Union engaged in outside trade, almost all of the domestic needs of production were realized within its contiguous borders. In such a way, scientists were moved to remote regions as a means of conducting further research, cotton was specialized and grown in key areas, industry sprung up around natural resource deposits and access to rivers and the sea, and other industries were differentiated as a means of geography and need. However, this was a centrally planned economy and one in which a perfect level of natural growth could not be exhibited. In the case of all of the Soviet Union, the years immediately following its collapse were punctuated by extreme economic hardship, the lack of currency and/or currency stability, supply and demand issues, and a number of other factors directly related to transition from a centrally planned communist economy to free market economy. In the case of Uzbekistan, the nation had only a light level of industrialization, no access to the sea, no natural land barriers, over 10 distinct ethnicities, and an environment that was heavily polluted an increasingly arid (Goff et al, 2008). In such a manner, the collapse of the Soviet Union provided an extreme level of shock to the region due to the fact that it no longer had means to sustain itself, ability to trade with the outside world, or any level of developed industry upon which you could rely. One of the defining aspects of Uzbekistan within the Soviet Union had been its production of cotton. However due to the fact that the nation was almost predominantly arid, it lacks the water resources to continue this high output of cotton to trade with the outside world. Accordingly, as a result of the lack of resources and economic hardships that punctuated the years following the collapse of the Soviet Union, a series of order conflicts, Islamic uprisings, and failed Democratic efforts defined the way in which is Uzbekistan sought to integrate with the rest of the world. Whereas there is doubtless and myriad of key issues that