Think of the fraternity party where you were smushed in the corner, or couldn't get in the door. Long lines to the snack table. People scrambling for the punch.
You were crowded out of the party.
Now replace all of the large, smelly dudes with banks now proffering high interest rates, and you're the private investor in the middle, hoping to invest money.
Crowding out happens when governments have had an expansionary fiscal policy with the hope of increasing economic activity. This activity leads to the government grabbing funds that might otherwise be loaned to the private sector, and results in higher interest rates.
So who gets nailed in this scenario?
You. Trying to get to the snack table, so you can put your dough to work. But you can’t do it, because you are “crowded out” under a deluge of high interest rates, or costs, of renting the money you wanted to put to work.
So, instead, you just, uh…try not to get elbowed in the face too much.
Related or Semi-related Video
Finance: What is Crowding out?2 Views
Finance, a la shmoop. What is crowding out? Alright people think of the fraternity [People dancing at a party]
party where you were smushed in the corner or couldn't even get in the door. [People outside waiting to get in]
Yeah long line to the keg, people scrambling for the punch, you were
crowded out of the party. All right now replace all the large smelly dudes who [Crowded out stamp]
say dude a lot, with banks now preferring high interest rates and you're the [Silhouettes of muscly guys replaced with banks]
private investor in the middle hoping to invest money, at the bar. While crowding
out happens when governments have had an expansionary fiscal policy with the hope
of increasing economic activity. Right they're doing all kinds of things they
can to stimulate the economy and move things along right? Well this activity [Big sack of money]
leads to the government grabbing funds that might otherwise be loaned to the [The sack is taken away]
private sector by borrowing money from them and results in higher interest
rates so who gets nailed in this scenario? You, this guy in the middle the [Nail being hit with a hammer]
one trying to get to the bar, borrow money and put go to work but you can't [Guy unhappy being squished in the corner]
do it because you are crowded out under a deluge of high interest rates or costs [Guy in a suit being surrounded by the banks]
of renting money that you had wanted to put to work to expand your garden gnome [Guy in a suit flies away]
producing business or whatever you do. So instead you just try not to get elbowed [Guy at the party is elbowed in the face]
in the face too much info eventually you can get pushed to the bar, good luck.. [Guy on the floor with bruises on his face]