Credit Crunch - What is it?

Meaning

By Muhwezi D - C/man CMIC

This is a money market situation in which loans are hard to get. Credit crunch occurs usually when a government tries to control inflation by imposing restrictions on lending to consumers and small businesses. Also called "credit squeeze". There thus is a sudden reduction in the availability of loans or ("credit") or a sudden increase in the cost of obtaining a loan from the bank.

Cause
Credit squeeze has been caused by the global economic crisis which was sparked off by the business of Le Mann Brothers business in the USA. This incidence has created fears within the financial institutions that give credit to the public.
Of recent, yuo have heard rumours that Barclays bank wants to close, however, this has been made clear by the Bank of Uganda that they just been rumours.

What does this mean to Ugandans
Different experts can give you different answers for this question. Recently a financial expert explained on NTV that in order to get ready for the financial crisis on a short term baasis, one should;
1. Save what he/she has instead of investing it in assets. To her, this is not the right time to invest in assets because as the situation worsens, those who will have invested in assets will not have money to purchase necessities, except those who will have invested the extra incomes.
2. Purchase only what is a necessity. She said this is not the best time to waste money in luxuries. Instead of buying luxuries, this money should be saved for use in the worst days likey to come in future.

In my opinion, this time is best for investment especially for those who want to invest in long term options such shares, unit trusts, land and buildings. The reason why I say this is because their prices are still low and once the crisis ends, those who will have invested are the ones who will enjoy the fruits of the "global crisis". It should however be noted that, if you have UShs 1,000,000 you must invest the whole of it. It is up to you to first consider your budget for the next three months, compare your earnings and decide on how much to save.
It may be better, if you invest 70% of your off-budget income and save 30% for in case purposes. This will help you to be prepared for both the unpredictable future as well as be able to enjoy the fruits with those who will have invested once the crisis is delt away with.

Meanwhile as we wait for the African financial experts to meet and brainstorm on the way forward for the global crisis, be a good planner, be ready for any worst and follow your frugal budget. Above all think about your job-if you are secure and remember; The "Global Crisis" has not ended.