Loose credit

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Loose credit

Policy by the Federal Reserve Board to make loans less expensive and more available by reducing interest rates through market operations.

Cheap Money

A monetary policy in which a central bank sets low interest rates so that credit is easily attainable. This makes borrowing easy for business, which stimulates investment and expansion of operations. The immediate result of cheap money is a boost in stock prices; in the medium term, cheap money promotes economic growth. However, if cheap money remains in the economy for too long, it can lead to a situation in which there is a glut of currency or too many dollars chasing too few goods and services leading to inflation. For this reason, most central banks alternate between policies of cheap money and tight money in varying degrees to encourage growth while keeping inflation under control.

Loose credit.

In order to combat a sluggish economy, the Federal Reserve's Open Market Committee (FOMC) may institute a loose credit policy.

In that case, the Federal Reserve Bank of New York buys large quantities of Treasury securities in the open market, which gives banks additional money to lend at lower interest rates. This abundance, or looseness, of credit is intended to stimulate borrowing and invigorate the economy.

Tight money is the opposite of loose credit. It's the result of the Fed's decision to sell securities in the open market, which reduces bank reserves and makes borrowing more expensive. A tight money policy is designed to slow down a rapidly accelerating economy.

References in periodicals archive ?
Analysts say loose credit conditions in Japan have expanded yen-carry trades, in which investors borrow cheap funds in Japan to invest in higher-yielding assets elsewhere.
Over the past several years--thanks in large measure to the Federal Reserve's loose credit policies--the housing market has undergone a spectacular boom as millions of Americans have become first-time homebuyers.
Although the embattled automaker declined to explain the reason for his resignation, the departure is widely seen as Torok taking the blame for poor sales and financial woes at a Mitsubishi Motors' unit in North America due to its loose credit controls.
They said that the Fed had to atone for failing to rein in loose credit policies that according to them encouraged the financial crisis in the country.
In February, Mitsubishi Motors raised its group net loss estimate to 72 billion yen from an earlier projected 11 billion yen for the business year to March 31 due to a slump in sales in North America and financial woes resulting from loose credit controls at its North American finance unit.
A greater concern in the long term, however, is the possibility that the government's current focus on existing bad loan problems might allow banks to maintain their loose credit assessment on borrowers needing attention and thus would allow the continuance of the currently inefficient economic system,'' the report said.