(No) money, money, money

“You’re in the crunch, you’re in the credit crunch
The credit crunch, you can’t afford your lunch”

More of that later.

The Oxford Dictionary of English says the term "credit crunch" is “chiefly North American” and defines it as “a severe shortage of money or credit”. Here, credit means loans.

For the average person, “credit crunch” meant little until the recent financial crisis. At Business Spotlight, we weren’t even sure how to translate it at first. Now it appears every day in the German media: Kreditklemme.

People often use “credit crunch” as a synonym for an economic downturn or recession. But, more specifically, it describes a situation in which banks don’t want to lend to each other — or to firms and individuals — because they are worried about getting their money back.

It's a bit like me lending friends DVDs. If I think I’ll get them back, I’m happy to lend more. I also don’t mind if my friends pass on my DVDs to their friends, as long as they come back to me at some point. If they don’t, the whole system breaks down.

The difference is that bank lending is more important to the economy than my DVD collection is. If banks don’t lend money to others, there is no point in them existing. As the economist Willem Buiter said colourfully, a bank that doesn’t lend is about as useful as “tits on a bull”.

In fact, credit crunches are nothing new. According to a recent story in The Guardian, the Oxford University historian Philip Kay claims that the first credit crunch was in ancient Rome in 88 BC.

But back to the present. One positive result of the credit crunch has been some typically creative British humour. Enjoy!