crowding out

Crowding out

Heavy federal borrowing that drives interest rates up and prevents businesses and consumers from borrowing when they would like to.

Copyright © 2012, Campbell R. Harvey. All Rights Reserved.

Crowding Out

A situation in which a government, especially the U.S. Government, borrows so much money that it discourages lending to private businesses. Crowding out generally occurs because lenders prefer the government as a borrower because it is much less risky and the government is able to pay any interest rate. Thus, when the government is borrowing heavily and lenders have only a finite amount they can lend, it may crowd out private borrowers.

Farlex Financial Dictionary. © 2012 Farlex, Inc. All Rights Reserved

crowding out

The borrowing of large amounts of money by the federal government—a process that soaks up lendable funds, drives up interest rates, and eliminates from the credit markets many private firms wishing to borrow money from those markets. The government is able to crowd out private borrowers because its credit rating is so high and because it is willing to pay the interest rate demanded by the market. Small firms and companies with poor credit ratings are most adversely affected by crowding out.

Wall Street Words: An A to Z Guide to Investment Terms for Today's Investor by David L. Scott. Copyright © 2003 by Houghton Mifflin Company. Published by Houghton Mifflin Company. All rights reserved. All rights reserved.