New Zealand's addiction to debt is extremely dangerous. The addiction
occurs at both a national and individual level.

We are currently spending approximately $43 million more offshore every day than we earn and most of this has to be borrowed. This means that the country is effectively acquiring an additional $10 of overseas
debt per person per day.

This is plunging us deeper and deeper into debt and according to the
OECD we are the third most indebted country, behind Iceland and ungary,
among its 30 members.

It is the same story on an individual level. In the 10 years ended February 2009 total individual debt surged from $62.7 billion to $175.1 billion. Thus New Zealanders have borrowed an additional $30 million plus per day over the past decade and we now have individual borrowings of $41,000 per head of population.

There has been a substantial increase in individual borrowings throughout the world over the past few decades but New Zealand is more
indebted than most because of our combination of high personal debt and
low savings.

As individuals we spend more than we earn every year and
when we borrow from our banks the funds have to be sourced from offshore because of our negative savings rate.

As a consequence our banks borrow offshore, on-lend to us and we spend it on houses, overseas trips and imported goods. This exacerbates the
country's huge net international investment deficit.

One of the most important points to note about debt is that it goes in and out of fashion. Sometimes it has been extremely fashionable to borrow while in other periods this strategy has been ruinous. The most successful individuals are those who know when to borrow and when to repay debts.

The early 1880s was a period of abundant credit, massive confidence and a speculative sharemarket and land boom in Auckland. Bank loans in
the city surged by 75 per cent in the four years ended December 1884 as the fledgling financial organisations, particularly the Bank of New Zealand, imported a huge amount of funds from Britain.

The city was in a speculative frenzy as farmland in Ponsonby, Mt Eden and North Shore was converted into residential housing.

But the boom came to an abrupt end on July 7, 1885 when the chairman of
the National Bank of New Zealand announced in London that his bank would write-off 100,000 on Auckland-based property loans. According to
R.C.J. Stone the BNZ sought to fortify its position throughout the colony by pulling in advances even at the risk of alienating sound clients and some of the leading businessmen of the city
could no longer meet the crushing interest burden of indebtedness from
past speculation.