Loose Credit

Categories: Credit

Everybody’s making loans. Easy money. Cheap credit.

What causes a world where there is loose credit? Well, generally, fearful governments. That is, they’re afraid of recession, or worse (at which point they don’t get re-elected).

“More poverty! More starving! More taxes!” Like…what politician runs on that platform?

Answer: those who lose. So when governments want to prime the pump of buying and commerce, they’ll do what they can to make credit looser, and they have a bunch of tools (financial ones; that wasn’t a personality assessment of their cabinets).

The Fed (or Central Bank in other countries) can drop interest rates. Bank restrictions on loan amounts get loosened, such that they can loan out 20 times their equity instead of just 15 or whatever. And loose credit is all good when it's needed. When it gets out of hand, it leaks into inflation, and then things go the other direction. Way less fun.

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