Submitted On January 16, 2018 Recommend Article Article Comments Print Article Share informative article on Facebook Share this article on Twitter Share this article on Google+ Share this article on Linkedin Share this article on StumbleUpon Share this article on Delicious Share this article on Digg Share this article on Reddit Share informative article on Pinterest Expert Author Daniel Fletcher No repeat of 2008 Research indicates that unlike 2008, credit expansion has “not been driven by subprime borrowers”. This implies borrowing has been led by more trustworthy debtors. Prime borrowers make periodic payments, on time, in full. With good reputations leading the way, it helps put aside fears we are just about to see a replica of the credit crunch. In 2008, banks enabled too much funding. When a lender approves a loan, it’s “making new money”. The new currency, while not spendable, is utilized to speculate on markets. Including mortgages (affecting house prices) credit cards and personal loans. Eventually the amount borrowed, paired with interest levels, makes the sum unpayable. Piled, outstanding debt then leads to bankruptcy risks. Finally, lending caused the collapse of a range of banks. So what is different this time? Stats suggest it’s only that those borrowing now are in a much better financial state than in 2008. Does that alone mean banks and consumers can rest easy? Unfortunately, no is the answer. Cautious optimism While prime debtor led credit is still a concern if the bubble grows too far, it isn’t a long-term risk (if banks have learned from the past). Controlling repayment and credit allows for stable growth. Managing that speculation and growth is the thing that keeps markets and cashflow stable. Prime borrowers may get subprime though if charge is offered too freely. As in 2008, interest rate rises, mortgage rate rises and risks of defaulting and insolvency can destabilise the whole system. Therefore maintaining debts at the “good debt” category is essential. Growing isn’t bad for the economy so long as it’s regulated. With customer financing hitting an 11 year high earlier this past year, some economists asked for warning. Caution is always advisable when it comes to handling cash. With growth being a positive if managed correctly, that warning can become cautious optimism if the credit situation stays strong and manageable. Learning curves Much has been heard from the credit crunch. The austerity and fallout has analyzed many households’ ability to tighten their belts. It has also ensured tougher regulation on lending and on how banks operate. Moving forward, the word of the day is balance. Balance between the money loaned, the interest rates kept, and the repayments coming in.