Easy money

Over the past fortnight there has been much hype about interest rates and whether money lenders - banks in particular - are being irresponsible by encouraging us to borrow.

Tuesday, November 15th 2005, 1:20AM

by The Landlord

Reserve Bank Governor Alan Bollard fired a broadside at banks and other interested parties who he says are holding fixed interest rates at low levels and are encouraging us to borrow more for their own self interest when we should be saving. Banks and various other parties, including me, have been quick to respond.

The reality is that for as long as I can remember there has been little correlation between fixed and floating interest rates in this country. Fixed interest rates have traditionally been lower than floating rates, so, since nothing has changed, why single out the banks now?

There are many factors affecting inflation. While we accept that consumers' desire to fix interest rates at a level lower than Bollard might like is one of them, so is his own decision to keep increasing the official cash rate which impacts on the value of the New Zealand dollar. There are many other factors, including the price of crude oil, over which we have no control domestically.

Which brings me to what I really want to talk about: the ethics of money lenders. How can we be sure that we are not over-committing ourselves and that we are being treated fairly? It seems that just about everywhere we turn now we are confronted with people who want to lend us money. Retailers are giving it away interest-free, sometimes for periods of up to two years before we have to pay anything back, and there is an abundance of finance houses willing to lend us money. In fact, it is fair to say that never before have we been able to acquire so much on tick with seemingly little emphasis placed on affordability.

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