little less aggressively. lenders, quite rationally, become more cautious too : collateral values are not rising any longer, and many business borrowers find their cash - flows lagging behind what the banks had counted on. on the fiscal side, when times get tougher governments also have to revise their plans, reassessing the level of tax revenue they can count on, no longer putting substantially more new money into the economy each year. the flow of new programmes tails off ; existing provisions are wound back and the private sector has to adjust to that change too. adjusting after a credit boom during the last three years of the boom, private sector credit in new zealand rose by around 14 per cent each year ( figure 5 ), when ( nominal ) gdp was rising at about 6 per cent. as we noted in our review of monetary policy, published recently in the bulletin, we probably put less weight on this gap at the time than we should have, or than we would do today. and that last phase came after a decade or more when private debt as a share of gdp had already steadily and substantially increased : private sector credit was about 70 per cent of gdp in 1990 and was 160 per cent at peak in 2009. the end of the credit boom came rapidly : annual credit growth fell from 15 per cent to 2 per cent in only 18 months. figure 5 private sector credit * growth * private sector credit to resident borrowers, excluding repos source : rbnz bis central bankers ’ speeches figure 6 public and private sector credit * * private sector credit to residents, ex repos, and former core crown net debt source : rbnz, statistics new zealand new zealand ’ s credit growth was not so different from that in a variety of other countries. in one form or another, the united kingdom, the united states, australia, spain, denmark, ireland and a swathe of other small oecd countries all saw historically large increases in private debt, and typically in asset prices too. the only major countries to avoid such booms were japan and germany. japan, of course, was still adjusting to its own earlier private debt boom and bust. if we had been asked a decade ago about how new zealand might have coped in the aftermath of a rapid build - up in debt and asset prices, we might have been relatively sanguine, especially if we had been told that the boom would end without a systemic banking crisis in either new zealand or australia. if asked, we would

alan bollard : dealing with debt speech by dr alan bollard, governor of the reserve bank of new zealand, and mr michael reddell, to the employers and manufacturers association, auckland, 6 august 2012. * * * introduction households, firms, and governments across much of the advanced world have taken on very large amounts of debt in the last couple of decades. in new zealand, for example, the private sector owes three times what it did in 1998. people and governments are now living with the aftermath ; dealing with the debt. many individual lives will have been irreversibly changed. even at an aggregate economy level, it looks as though we could be dealing with the aftermath for quite some time yet. this speech offers some perspectives on what the accumulation of debt means for people, and for our economies. inevitably some of the material will have quite a provisional flavour : how things will play out remains uncertain, and is being intensely debated by academic researchers and policymakers alike. it matters to us all. some context debt is not new. in his recent book, debt : the first 5000 years, the american sociologist david graeber demonstrates the central role that credit has played in economic and social life stretching back millennia. but some things are newer : for example, the scale and pervasiveness of the public and private debt, the scale of cross - border gross and net debt, and the central role that highly - leveraged financial institutions and wholesale financial markets play in making that debt possible. and what is particularly striking in the last few decades has been the rate at which debt has increased ( relative to income ). if debt is not new, neither is it a bad thing. debt gives borrowers and savers alike additional options. the ability to lend and borrow is an important part of what enables us to enjoy the sort of life we do. to see the point, one has only to try to imagine a world without debt – a world in which entrepreneurs could not borrow to develop fast - growing firms, and where home ownership was restricted to the rich and the over - 50s ( who had saved the full price of a house ). at a national level, the ability of one country ’ s citizens to borrow from those of another country means that regions that need a lot of new capital to develop ( think of the united states or new zealand in the late 19th century ) can borrow from those with a lot of savings ( think of the late 19th century united kingdom )