Is New Zealand in danger of going the same way as Iceland?

New Zealand's economy is in its worst recession on record, unemployment is rising, repossessions are mounting, yet the average Kiwi still seems to think that the global crisis will not reach our shores.

Unlike Iceland's banks, which were brought down by aggressive and highly leveraged growth, or European banks rescued by their governments, New Zealand's banking industry shows no signs of stress yet. Please do not be fooled by the calm before the storm. Just because the big Australian banks - National Australia Bank, Westpac Banking, Australia and New Zealand Banking Group and Commonwealth Bank of Australia - dominate the market and have so far escaped the global meltdown, does not mean that they are not associated with the toxic financial products that have been sold around the world.

At the end of March last year, New Zealand's national debt as measured by a negative net international investment position, was 86 percent of GDP, second to Iceland in the group of countries in the OECD.

The country's banks are rated AA by Standard and Poor's and have funded a shortfall in savings with commercial paper issues, which have been renewed every few months. They minimised risk by hedging their foreign exchange exposure in the futures market. Meanwhile, the UK, the US, Germany, Greece, Austria, Belgium and Ireland bailed out banks with taxpayers cash.

Because of its dangerously low household savings, New Zealand has long lived on foreign borrowings to fund spending.

There is a serious worry that international investors are losing confidence in New Zealand's ability to meet its debts. Standard and Poor's downgraded the outlook of New Zealand's AA-plus foreign currency rating to negative from stable in January on concerns over its rising fiscal and external deficits.

This is surely a huge warning that New Zealand is far from safe and that the banking system could soon be in serious difficulties.

I have been saying this for over a year now, and the press and media do not want to hear my words as I am unpopular. But I am speaking out to the average person who wants to protect their wealth. The banking system may go down here. The government may not have the funds to bail them out. What could happen? There may be a banking holiday where your money is frozen and you cannot get it out of the bank. They may hold onto a chunk of your money for a long period of time without letting you have access to it. There are numerous options. But all I am wanting to do is to draw your attention to the fact that in New Zealand we are vulnerable.

At least spread your money around several banks.
Have at least three months expenses and living costs in cash on hand.
Invest in a small amount of gold and silver if you have some surplus cash.
Do not take on any debt if you can possibly help it.
Get rid of all your credit cards, or make sure that you pay off the balances each month.

Good luck and keep watching this space!