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Are we really on the verge of credit crunch part two?

The Bank of England has most certainly set the alarm bells ringing in the UK with a suggestion that we may well be on the verge of credit crunch part two. The Bank is warning of reduced liquidity in the mortgage market and reduced liquidity in the loan market which could choke the UK economic revival even before the public-sector budget cuts kick in. So are we really on the verge of credit crunch part two?

Many experts warned that the credit crunch would come back to haunt the worldwide economy at a later stage and it would appear that potentially these fears could come true. Many company balance sheets were decimated during the worldwide recession and while profitability has returned to areas such as the banking industry, underneath the surface there is still significant financial distress. The removal of the ECB's short-term liquidity program caused concern across European markets earlier this week and even though demand for funding was less than expected there is a fear it will grow in the short to medium term.

It is unclear whether governments and financial institutions around the world have removed financial assistance too quickly or whether indeed there is a need to feel pain in the short term to enjoy the gain in the longer-term.

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