Debt: the insidious threat


This article was first published in the Wairarapa News in January 2012


Many of us find it easy to dismiss daily news coverage of Eurozone troubles. What has global finance to do with us? Europe’s debt crisis feels so far away it hardly seems to matter.


So let’s take a good hard look at the local scene instead. How are we doing financially? What becomes immediately apparent is the huge debt hole we find ourselves in. According to Reserve Bank figures, every man, woman and child in New Zealand currently owes over $70,000.


Impossible, surely? - but true. There are the mortgages we’ve taken out to buy and furnish our homes and to stock our farms and businesses, the loans our tertiary students have taken on, what we owe on our credit cards and hire purchase agreements, the local and regional debt we service via rates, the government debt we service through taxes and, on top of all these, the corporate debt that hits us in high prices for goods and services.


It doesn’t end there. Although $70,000 would seem more than enough of a load to lay on each of our newborn babies, this ‘cot debt’ signals a lifelong burden.


Most of us are so busy earning money, either to ‘make ends meet’ or to ‘get ahead’, that we fail to notice the income threat that money itself represents.


Our current form of money is actually debt: it not only originates as bank credit but remains ‘live’ – actively on loan and attracting interest – for as long as it circulates, regardless of whether we are spending or earning it.


Whenever I spend money, the sale price must cover the seller’s interest costs. I end up funding that interest – by working harder, increasing my own prices or borrowing the difference myself (and paying yet more interest).


Whenever I earn money, the sale price is limited by my customer’s budget – of which interest has already nibbled a sizable share. So that interest costs me as well – in lower prices and fewer sales, or in lower wages.


What it adds up to is that borrowers are by no means the only ones gouged by interest. Bank-issued money – the $70,000 each of us owes – exacts a double ransom from everyone it touches.


Money extracts from every man, woman and child a current interest cost in the order of $85 per week. Although the present interest rate is unusually low for New Zealand, the cost of interest is still too high to pay off any of the debt itself, and of course the debt is still growing. Ten years ago it was ‘only’ $58,000 per person. The cumulative effect of interest is that New Zealanders are looking to be in debt forever.


Widespread indebtedness is no accident. The centuries-old agenda of financial corporations has been to keep as many people in as deep a hole as possible. The messages we’re fed about money making money distract us from its danger: those of us with investments are so thrilled to be earning interest that we don’t notice it circling round to bite us from behind.


We’ve overlooked the fact that our whole community is in the debt hole together. A minority might be sitting pretty, owning freehold homes and running profitable businesses, but little islands of prosperity in a sea of depression are hardly sustainable. If getting out of the hole is at all feasible, the attempt will see the whole community emerge together. The obvious first step is to stop digging.


Interest represents an enormous waste, a constant flow of wealth out of our households, out of our towns and out of the region. Anything we can do to stem that flow will stretch our weekly pay packets, strengthen our businesses and give our region a new lease of life. Methods of conserving local wealth demand at least as much of our attention as we give to local water conservation schemes.


What if we could trade without paying interest? What if communities could replace debt-based money with forms of exchange involving no waste?


New Zealand communities are already adopting options to reduce collective debt and the waste it represents – options any community might use to make local prosperity more than just a dream.