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 ?
Obama's solution to the economic crisis (other than to increase the national debt and further loosen credit in this recession that even he acknowledged was caused by too much loose credit) is to give the Fed, the same body responsible for the current economic mess, more responsibility for ensuring it doesn't happen again: "We believe that the Fed has the most technical expertise and the best track record in terms of doing that." Obama was asked by a reporter during that same press conference if he was proposing to give the Fed too much power, and Obama denied he was expanding its power: "If--if you look at what we've proposed, we are not so much expanding the Fed's power as we are focusing what the Fed needs to do to prevent the kinds of crises that are happening again."
But Clinton and the economy would soon reap the benefits of increased economic confidence and loose credit. Most importantly, Clinton had also sent a signal to the Federal Reserve that he was fiscally responsible and that the country's economic needs could be on a par with his own political ones.
The credit expansion raised concerns about excessively loose credit conditions.'
But with foreclosures on the rise - locally and nationally - lenders are feeling pressure to tighten up on loose credit standards that brought unprecedented numbers of first-time homeowners into the market during recent years.
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.
manufacturing operations as Mitsubishi Motors' brand image took a beating from financial difficulties resulting from 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.