Days of easy credit are over

With lingering concerns over the instability of the market, many lenders are becoming increasingly reluctant to allow customers to borrow. Credit that was recently easy to come by is beginning to disappear.

An article in The Boston Globe explains the challenges that ordinary people are likely to face if credit remains scarce. Many businesses and even some industries such as construction and manufacturing depend largely on the ability of their customers to obtain credit.

When credit is not available, growth and job creation trend downward. As a result, it becomes even more difficult for the market to recover. These effects can lead to a long term slow down, taking time to appear.

For example, the average person does not make a large purchase very often, so a short term scarcity of credit would have a limited effect on the economic situation. When a large number of people cannot get credit to take out mortgages, car loans, or home equity loans, houses remain on the market and new cars are sill in the lot.

Consequently, retailers have a harder time making money and a smaller workforce is needed because there are not as many customers. When jobs are scarce, so is disposable income, and the cycle worsens.

Some believe that banks' recent tightening of standards when considering applications for credit may be an over correction due to the concern over the ability of many borrowers to pay back their loans. As long as credit remains difficult to obtain, it will be difficult for the market to regain strength.

Read the Boston Globe article here.

--Bridget O'Sullivan