The "Credit Crunch" refers to a severe lack in availability of credit, which occurred following the end of the longest period of sustained economic growth in the USA and UK after peaking in 2007.

Should this growth have been constrained to counteract the confidence in self correcting free markets proposed in Thatcher's 1986 financial deregulation, leading to the elongation? Confidence soared and greedy bankers in leading financial sectors optimism and greed drove their institutions into bankruptcy as excessive rewards and bonuses were given for gambling with "toxic money", dramatising the inevitable historical cyclical oscillation in tow. Despite previous experience of recession, no contingency plans were in place and history repeated.

Rates for interbank lending in USA were held at a historical low from 2001-2006 by Alan Greenspan as excessive savings were generated in emerging economies like China which were invested into US bonds increasing liquidity in financial system. The drop from 6.5% in 2000 to 1% in 2003 to combat the effects of 9/11 terrorist attacks and the dotcom collapse encouraging spending by reducing mortgage repayments to detract saving, increasing consumer confidence and fuelled demand for credit. The injection of cash from overseas increased the availability of credit and ease of obtaining for businesses and consumers attracted banks to enter the mortgage market, previously dominated by savings and loans companies as higher rates were charged to homeowners than in existing industrial and commercial property markets.

Financial deregulation lead to inaccurate credit checks on potential mortgagees who were resultantly given subprime mortgages. Over a third of all mortgages given in this boom period were subprime and as a result of agencies like Moody's and Standard and Poor's issuing 64,000 subprime mortgages and CDO's false AAA ratings, homeowners were unable to meet repayments. Rates were then increased again to 5.25% by June 06 which made repayments even harder to meet on the variable rate mortgage market whilst fixed rate mortgages collapsed in 2002-2005 as the opportunity cost seemed of greater benefit and other contributory factors decreasing disposable income.

These "toxic debts" were then compiled together with other mortgages and sold within CDOs on the financial market who expected a frequent revenue stream via repayments from homeowners.

Leading markets in thriving economies such as finance, property, manufacturing and raw materials are amongst the main contributors towards the growth and descent of GDP leading to global downturns.

Oil played a major role as a non renewable, inelastic and vital resource used around the globe. As the supply and demand theory states, the scarcer the supply in a commodity, demand will increase proportionally thus raising its price. Saudi Arabia and Russia are the two largest exporters and producers of oil with USA, China and Japan importing and consuming the most being hit the hardest by the dramatic increase by over half to $135 a barrel in less than six months in 08. Businesses and individuals were both affected as disposable income decreased and cost of transport soared resulting in job losses, decrease in consumer confidence and profitability whilst slowing total GDP contributing to the economy shrinking and contributing to the "Credit Crunch".

The cost of attaining raw materials increased causing a domino effect throughout production chains to end users across the globe. Australia is a leading producer of raw materials such as iron, copper and new roads and with China's powerful manufacturing industry paying an increased price to obtain these materials will inevitably transpire that additional cost onto their final products. In conjunction with China's strong manufacturing sector brought strong exporting power due to its renowned low cost and alliances, whilst continuously providing many products to countries across the globe contributing to further increased prices and inflationary threat putting pressure on wages and imposing new employee regulations.

The main contributory factors leading to the distinct chain of events in the financial sector resulting in the evaporation of funds available for credit initiated in the US housing market as above. CDO's and other package deals given initial inaccurate ratings were sold as "no risk" investments to companies like Northern Rock, Bradford and Bingley and other leading UK and US banks relying heavily on wholesale money markets to fund credit. The true value of residential mortgages fell dramatically and in April 07 13% of the $10trillion debt derived from defaulted foundations. House prices in the USA then depreciated 20-30% per year.

The first effect of subprime mortgages imposed on New Century Financial filing for bankruptcy protection and cutting half its workforce in April 07. Having sold many of its debts sold onto other banks around the world, impact of the subprime market was felt globally.

Confidence in the financial market was falling as investors in Bear Stearns wished to take money out at the initial share price of $170 equating to $3billion total share capital as it revealed two of its major hedge funds were heavily invested in subprime debt in July. Bank loans of over $100billion given to private equity firms sparked fear over credit checks in other credit markets too.

On August 9^th, investment Bank BNP quickly followed suit unable to value assets in two major hedge funds further contributing to the evaporation of liquidity in the market and banks increasing reluctance to lend to each other.

As Thatcher's ante Keynesian privatisation ideology drifted to the US when Reagan came into power 18 months later, both financial systems became entwined hence the collapse in banks overseas and aftershocks felt throughout the world.

The European Central Bank injected over €200bilion to boost liquidity whilst the US Federal Reserve, Bank of Canada and Bank of Japan took the same action in return for shares whilst market interest rates were reduced to encourage lending. The interbank lending rate then rose higher than Bank of England's emergency lending rate to banks. Confidence was shattered, banks refused to lend to each other and markets froze causing the first bank run with Northern Rock fuelled by media hysteria prompting a £2bn withdrawal of savings and were bailed out by the government. Credit then became increasingly difficult to obtain by businesses and consumers as well forcing organisations into administration and making redundancies through lack of disposable income and consumer confidence in essential markets.

A chain of financial institutes then followed in announcing subprime related debts including UBS, Citigroup and Merrill Lynch. In December 07, US Federal Reserve coordinated 5 leading central banks to inject billions of dollars into the banking system with $20billion auctioned from the US Federal Reserve and $500billion from European Central Bank to keep the industry afloat over Christmas.

In January 08 Standard and Poor's decreased ratings on monoline insurers which guarantee loans to be repaid even if the lender goes bust fuelling further fear for banks not meeting repayments through lack of liquidity and another batch of announced losses whilst global stock markets plummeted. On March 17^th 08 J P Morgan bailed out Bear Stearns with the backing of the US government having fallen to less than a tenth of its worth following the deal from the previous year  to minimise job losses and  retain depositors confidence in the industry.

The Bank of England offered £50billion to buy risky mortgage debts in return for secure government bonds in April 08. Banks were reluctant to accept and become part nationalised and attempted to launch rights issues, raising money through shareholders. HBOS rose over £4bilion despite only 8% of shareholders showing interest through issuers underwriters.

From April 08, UK house prices began to show a yearly decrease and 2 of USA's leading lenders subject to nearly half of all housing market loans worth over $5trillion, Freddie Mac and Annie Mae were saved by government intervention as they incurred the repayments of defaulted loans in July. These two organisations greatly influenced the housing and mortgage markets and received intervention to maintain market liquidity.

The British government intervened again introducing an increase of stamp duty exemption raising the bracket from £125,000 to £175,000 to increase disposable income and consumer confidence in the housing and retail markets.

Lehman Brothers in the US were also forced to find a buyer when Barclays showed interest having received injection from an independent Asian investor however was denied approval from British authorities and on September 15^th Lehman's filed for bankruptcy whilst Merrill Lynch succumbed to protective arms by Bank of America and AIG to majority government stake. Lloyds then bought HBOS and J P Morgan bought Washington Mutual. A succession of bank nationalisations occurred throughout Europe and UK with further quantitative easing intervention later seen in the US as a result if the "Credit Crunch"

The "Credit Crunch" derived from subprime mortgages and the lack of awareness of risks involved through inaccurate credit checks and false ratings by the failure of valuing assets. However the lack of financial regulation imposed in the 80's allowed such optimism in a prolonged boom to disregard liquid assets as security if the perceived impossible occurs. The lending of nonexistent money from bankers gambling in money markets with financial institutes all relying on each other fuelled the no risk culture in financial industries causing organisations to gain competitive advantage to obtain market share through the creation of easy attainable mortgages and package deals offering subprime and CDOs to unaware investors.  Liquidity in the financial system evaporated resulting in a severe lack of credit availability causing unemployment to soar, currencies depreciating affecting the balance of payments as exports decrease ammounting to the deepest recession since the Second World War.