It has always been important but never so much as now, to take full responsibility for your own domestic economy. This is because in recent times we have seen the results of the mismanagement of the global economy. The frightening thing is that this didn’t occur overnight but gathered momentum through a period of time and was the result of a belief that rational self interest was justified because of the benefits it would bring to the wider community. This trickle down theory seems naïve in light of what actually happened because the effect of governments and banks deregulating and “letting markets function unencumbered”, as Alan Greenspan put it, lead directly to what we now know as the credit crunch.  

In his book, “The Credit Crunch”, Graham Turner explains his theory of how the 08/09 recession occurred by demonstrating that the classic production /consumption savings/ investment continuum was thrown off balance.  

Turner claims the imbalance occurred between production and consumption because “unencumbered markets” meant that the capitalists of the West, in search of even greater profits, took to manufacturing their goods in the sweat shop economies of China and the East. This created unemployment and low-paid jobs in the West and consequently affected purchasing power because now a large percentage of Western consumers could no longer afford to buy what they once had. In response to this governments and banks worked to stimulate growth by dropping interest rates and this fuelled the rise in credit and, in America, one particular form of credit, the sub-prime mortgage. Unfortunately it wasn’t long before people could no longer afford the credit they needed to supplement what they didn’t earn. As the extent of this issue became obvious people were dumbfounded that governments, banks and credit rating agencies hadn’t identified the problem earlier and moved to limit the damage before it was too late.

This realization created a distrust of governments, banks, and financial companies but, at the same time, at an individual level, a sense of helplessness because, if mistakes could be made at a global level, how could individuals protect themselves against this sort of mismanagement?

Surprising, as it seems, the answer is relatively simple one for some New Zealanders. This is because most New Zealanders major debt is their home loan which is a bit like having a massive credit card. The more you owe the more you pay in interest and this is going to take up a large part of a working life to pay down. Fortunately, unlike credit card debt, the forced savings that go into mortgage repayments do eventually result in an asset. The great news is that if a mortgage is properly managed a lot of interest can be recouped. In fact, this retrievable interest is the hidden wealth in most peoples’ domestic economies. Further good news is that if a mortgage is properly designed and properly managed this retrieved interest turns into a powerful savings facility. So think how it would feel, if, at no extra expense, it was possible to own two houses in the time it usually takes to own one. It would certainly be a positive way to invest your hard earned dollars in securing your financial future. And what’s more this way of building your prosperity is within your own control and is not dependent on the decisions made by external institutions such as banks or governments.