[1] Some economists, including Barry Eichengreen, Hyman Minsky, and other Post-Keynesian economists, and members of the Austrian school, regard credit cycles as the fundamental process driving the business cycle.
However, mainstream economists believe that the credit cycle cannot fully explain the phenomenon of business cycles, with long term changes in national savings rates, and fiscal and monetary policy, and related multipliers also being important factors.
[3] During an expansion of credit, asset prices are bid up by those with access to leveraged capital.
[4] When buyers' funds are exhausted, an asset price decline can occur in the markets which had benefited from the credit expansion.
This, in turn, can threaten the solvency and profitability of the banking system itself, resulting in a general contraction of credit as lenders attempt to protect themselves from losses.