Final Word from Friday, January 25, 2008
By its very definition, a credit crunch means there's a shortage of cash. Banks get tightfisted, cut back on their grandiose expansion plans, and start looking for ways to fill the holes in their balance sheets. The worse it gets at home in the U.S. or Western Europe, the more the banks and other companies hit by the downturn look to their foreign subsidiaries for a cash injection. This leads to a contraction in the money supply on the foreign market, affecting both households and businesses. At the same time, as world leaders increasingly compare the mounting crisis to the Great Depression, depositors start remembering the bank runs and withdrawal limitations that accompanied previous crises, and they start sticking more of their money under their mattresses. This leads to a further contraction in lending, as banks scramble to meet their capital requirements. It's a vicious circle with no obvious way out. Those who see it coming can take steps to protect themselves. [Czech Republic 1929 dividend repatriation United States of America]
Glossary of difficult words
cash is king - a common expression with many nuances; sometimes it means that it is important to have strong cashflow to run a business; sometimes it means that cash in the bank is better than money tied up in investments; sometimes it means cash in your pocket is the best solution;
credit crunch - a state in which there is a short supply of cash for lending to businesses and consumers;
tightfisted - not willing to give or spend much money; miserly;
grandiose - excessively grand or ambitious;
contraction - shrinking, tightening, decline;
crises - plural of crisis;
to scramble - to take action in a hurried manner.