Gog.org.nz

Loan sharks who prey on the poor in deprived parts of urban New Zealand are generally regarded with fear and loathing. This is slightly unfair because they are only carrying on a tradition that began when, many centuries ago, robbers flush with loot set up the forerunner to the banking system, in what we now know as the City of London. And – apart from the obscenely high rates of interest – the loan shark isn’t all that different from your run-of-the-mill Kiwi finance company, which feeds on the savings of honest people, pays them pathetically low interest while it lends to unreliable borrowers at crippling rates, creams off the profit and retreats to the $30 million boat or mansion when everything goes pear-shaped.

They know that the world is full of mugs, and there’s another one born every minute. They also know that no journalist will dare to publicise their dodgy credentials until the damage has been done, and that they work under a regulatory framework that is so benign that it’s actually malign.

Shift up a gear or two, and you find that our entire country is easy meat for the same breed of predator. We’ve become hooked on borrowing foreign money and wasting it on imported consumer goods, housing, holidays and so on – rather than using it to make an honest profit and add value to the nation. China will rule the planet, if we keep borrowing money from the Chinese to buy their products. Some economists calculate that if China called in all its mind-boggling hoard of US dollars, the United States economy would collapse within 48 hours.

Today, like Third World basket-cases, New Zealand cannot earn enough to service its foreign debt, so we need to borrow even more.

New Zealand has been on the slippery slope for years, and a .25 percent cut in the Reserve Bank base rate isn’t going to change a thing. We’ll still be seeking those foreign funds to keep the place afloat, and the foreigners who own the real money have also become accustomed to earning high interest from their loans to us.

Now that we need their cash even more, don’t expect any acts of generosity. They have us by the short and curlies and now we’re headed for the worst of all possible worlds. The dollar will drop and the real cost of overseas borrowing will rise – accompanied by an unhealthy extra dose of general inflation.

The policy of maintaining high base interest rates will eventually be proved to have been a disaster. It attracted boundless foreign funds and promoted a false sense of consumer prosperity. One school of thought says that high interest rates are a tool against inflation, but in a globalised economy (as we have so recently seen), that doesn’t stack up. The other school says that we have to keep rates high because international financiers see New Zealand as a risky borrower.

People who have lost their shirts through finance company failures and the housing slump will ask: what was the good of those huge Government surpluses, when the rest of the economy was virtually bankrupt?

This may still be Godzone, but one day the truth will dawn: we’ve been living in houses made of plastic cards, and a fool’s paradise.

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