It sounds like a breakfast cereal, Credit Crunchies, mmmm yum! It definitely sounds less scary or depressing then a recession or depression, at least to me. This is not to say that it isn't a scary time for a very large group of people world wide and this is why I am taking a comical writing style. In the face of hardship sometimes the best coping strategy is to laugh, otherwise you might cry.

So a credit crunch is basically a reduction of the general availability of credit (loans) this usually means a tightening of requirements to obtain loans from banks. The reasons banks stop or slow lending activity may be due to an anticipated decline in the value of collateral, a change in monetary conditions due to external factors and directs credit controls imposed from the central government, or even an increased perception of risk in regards to the solvency of other banks within the banking system.

When a sustained period of careless and inappropriate lending that results in losses for lending institutions and investors landing them in debt happens and the full extent of bad debts becomes known we have a credit crunch. Basically when market prices collapse for over-inflated assets you have a crunch and this can result in widespread foreclosure or bankruptcy for the investors and entrepreneurs who came in late to the market. When an otherwise sound business finds itself temporarily incapable of accessing the finance it needs to expand business or smooth cash flow payments this is a liquidity crisis. It is difficult to know during a crisis whether a distressed business is experiencing a crisis of solvency or a temporary liquidity crisis.

There are a few additional factors going into the global economic crisis. A few years ago in America there was a housing market bubble. Loans were being given to new home owners to help them buy houses, often the loans were given to people with low incomes and little understanding of how their loan would work. When the monthly rates went up and the home owners were unable to make their payments this was the first tremor for the crisis to come. 

The global banking system traded these mortgages in bundles as investments. As more and more people defaulted on their mortgages the true value of an investment in one of these mortgage bundles became apparent, they didn't have much value at all!

Here in the UK many of the banks had these bundles as assets when value dropped and the banks no longer had the assets to make loans we had our first run on a british bank. I do believe that had there been a run on a major bank in America it would have been an explosive situation, here the brits formed a nice orderly cue! It was the craziest thing to watch on the morning news before work. I even wondered if I should cue up to get my money out of my bank. Fortunately I don't make much money so figured it should be covered by the government. Now a days I seem like the best bank customer, I hardly ever go into the red and the one time it happened I sorted it within an hour of going over drawn. I throw away any offers for loans figuring they don't know who they are offering to, give me money and you wont see it again!

Let me be blunt here, most of my life I have been poor. I have had to learn to live within my limits and when I really want something I have to work, save and hopefully find a good sale. Since the start of the credit crunch my life has not been hugely impacted, yes prices and inflation have gone up but so has my pay check (tho not by nearly as much as I would like!)

The biggest change for me is in how I see myself in society. During the boom times I didn't feel I had that much to contribute, I did not go on expensive holidays and I was not the valued consumer that business loves. These days most of us are consuming less and making what we have and buy last longer. I have always had to do this and have found ways of making it work and even enjoying life. This last summer term at the school I work at for the first time most of the families did not seem to be going all out for the holidays. They would ask me what I had planned for the holiday and my humble response 'I will probably go camping with the family either in down in Kent or up in the Lake District' brought about a new response, genuine interest. Many of these middle class families have been used to flying somewhere warm with a beach or good shopping. I now am in a position to let them know that there are cheaper ways of having a fun holiday, closer to home.

Right now in my life I am finding just what I do have to offer! My self image is not of being less then the middle class people I work near anymore but that of one of being on the same level as most. The difference in how I see myself must be effecting my self esteem and motivations as I am excited and looking for opportunities when before I thought it was all too hard! For me the credit crunch has been a bit of a blessing in that it has lead me to rediscover myself and my strengths. I guess the best way of saying it is that during this time I have found a wonderful opportunity for a new beginning.  

I am very curious to know what others experiences are. How have you been effected? Maybe you haven't really been effected at all? Lets share what our experiences are good and bad in the comments!