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Edition 01 : 06 August 2011.

Edition 02 : 21 September, 2011.

Edition 04 : 09 February, 2013.




Summaries of monetary reform papers by L.F. Manning published at


NEW Capital is debt.


NEW Comments on the IMF (Benes and Kumhof) paper “The Chicago Plan Revisited”.


DNA of the debt-based economy.

General summary of all papers published.(Revised edition).

How to create stable financial systems in four complementary steps. (Revised edition).

How to introduce an e-money financed virtual minimum wage system in New Zealand. (Revised edition) .

How to introduce a guaranteed minimum income in New Zealand. (Revised edition).

Interest-bearing debt system and its economic impacts. (Revised edition).

Manifesto of 95 principles of the debt-based economy.

The Manning plan for permanent debt reduction in the national economy.

Missing links between growth, saving, deposits and GDP.

Savings Myth. (Revised edition).

Unified text of the manifesto of the debt-based economy.

Using a foreign transactions surcharge (FTS) to manage the exchange rate.



(The following items have not been revised. They show the historic development of the work. )


Financial system mechanics explained for the first time. “The Ripple Starts Here.”

Short summary of the paper The Ripple Starts Here.

Financial system mechanics: Power-point presentation. 





THE Disputation on the Power and Efficacy of the Indulgences of the Debt-BASED FINANCIAL SYSTEM.


By Lowell  F. Manning and  Terrence E. Manning.



Out of love and concern for the truth, and with the object of eliciting it, the following heads are offered for public discussion under the presidency of the Authors. They request that whoever cannot be present personally to debate the matters orally will do so in absence in writing.










The following three-dimensional diagram represents the DNA of the debt-based economy. It is tilted forward from the top to make its features easily understandable.


The diagram is made up of two mirrored helical strands of financial DNA. The blue strand represents the total accumulated GDP output for a given period while the red strand represents the total outstanding productive investment principal. The vertical axis of the helices represents time. The diagram shows a random period of four years.


On the blue helix, Vy bases of production output My are added over the time span needed to make one full turn of the blue helix (usually a year). On the red helix, Vy bases of national saving Sy (net new productive investment) are added over the time span needed to make one full turn of the red helix (usually a year). For ease of consultation, the bases of production output My and the bases of national saving Sy are shown only for year three. The drawing shows nineteen of them, as this is the approximate speed of circulation Vy of productive deposits My in New Zealand.


The helices replicate by extension. The blue helix showing GDP “dies off” at the end of each period. The helices grow exponentially by the transfer of National Saving Sy from the blue helix to the red one over each notional production cycle.


For each of the bases the national saving Sy is returned to the next production cycle on the blue helix in the form of net new capital investment Sy (Saving = Investment) as shown. Individual bases can vary in size (up or down) reflecting the state of the economy.


The annual length or growth ring Lz of the blue helix shows the GDP as it accumulates  during that year. The nominal, usually annual, GDP growth in the blue DNA is the change in length Lz of the DNA spiral over the period z compared with the corresponding length L z-1 over the previous period. In the diagram, the length (and therefore the diameter) of the GDP spiral is shown to be increasing exponentially from year to year.


The annual increase in the length of the growth ring Lz of the red helix shows the annual increase in outstanding investment principal S which also equals the nominal GDP growth for that year. The total length of the red helix at any time is the sum of all outstanding investment principal.  It equals the current (annual) GDP at any time.


At the end of each (annual) period z (and only then) the value of output represented by length Lz of the blue helix (the GDP for that year) equals the value represented by the whole of the red helix (its total length representing the sum of all outstanding investment principal).


The plan diameter of the helices typically expands exponentially. The helices vary together with the state of the economy. In the case of recessions they show up as changes in the annual rate of increase of the helix diameters, and therefore the length of the spiral loops. In the case of depressions they would show up as an actual annual decrease in the helix diameters.


Click here to view a drawing showing  the DNA of the debt-based economy.

Click here to see a visual form of the debt model.





This document presents unified texts of the 95 principles included in the Manifesto of the Debt-Based Economy. They are organised in a logical order of sequence under the various subject headings. The revised Fisher equation showing the debt Model is described in the Appendix.




For practical purposes, debt-based financial systems in modern industrialised countries are cashless. In industrialised (and most other) countries, privately owned banks create new debt and charge their clients for doing so. In the debt-based system the debt is created before its corresponding money deposit.


Except for residual cash transactions, in a debt-based financial system there is a unit (dollar) of debt for every unit (dollar) of “money”. For every unit (dollar) “saved” by one person there is a unit (dollar) of debt owed by another.


Debt can only be used once. Once debt is used it must eventually be repaid with interest. Unless it is written off by bank failure, existing debt can be repaid only by reducing the banking system deposits or net worth.


Debt growth.


The debt based financial system is dynamic and independent of orthodox economic equilibrium theory. Orthodox economics offers no mechanism to achieve elimination of unsustainable debt growth. As the ratio of unearned income to GDP increases, the ability of the productive economy to fund the pool of unearned income decreases.


Net after-tax interest paid by banks on their clients’ deposits forms an exponentially increasing pool of non-productive unearned interest income that is never repaid and is a structural part of the debt-based financial system. The interest rate on deposits must be eliminated if the exponential growth of the pool of non-productive unearned income is to be stopped. Unless the deposit interest rate is zero, Domestic Credit, unearned deposit income and nominal GDP must all grow exponentially because, in the debt based financial system, they are all a function of the deposit interest rate.


In the absence of realised capital gains it is impossible to maintain exponential debt expansion greater than GDP expansion over an extended period because the added debt servicing costs will always leave the productive sector insolvent. The debt supporting the exponentially increasing pool of non-productive unearned income leads to an ongoing transfer of real wealth from the productive sector to the non-productive investment sector.


Credit bubbles, recessions and depressions result from the failure of the banking sector to properly align demand for credit with the productive capacity of the economy. Credit expansion in the banking system above what the debt system requires means there is a bubble in the economy while credit expansion below what the debt system requires means there is a recession or depression in the economy. A credit bubble or economic contraction is neutralised when credit expansion has been adjusted so that it just satisfies what the debt system requires taking into account the full productive capacity of the economy.


There is no “money” multiplier in the debt based financial system other than the  (slightly) variable speed of circulation of the transaction deposits actually used to generate productive economic output.


Exponential debt growth can be eliminated by progressive credit monetisation of the existing debt and by permanently reducing the OCR (Official Cash Rate) towards zero, at which point systemic inflation caused by interest paid on deposits would be removed from the financial system.




Systemic inflation and exponential debt growth are caused by interest paid on bank deposits. Interest paid by banks on their clients’ deposits forms an exponentially increasing pool of non-productive unearned income that is a structural part of the debt- based financial system and cannot be repaid.


In a debt-based economy where interest is paid on deposits, systemic inflation is half the interest rate paid on deposits provided adjusted wage rates rise in line with that systemic inflation plus productivity growth and there are no changes to indirect taxes. Systemic inflation arising from deposit interest automatically reduces towards zero as deposit interest rates reduce towards zero. However, in the absence of quantity controls on the issue of new debt, low interest rates can lead to unproductive “bubble” lending, thereby increasing price inflation.


In an economy based on interest bearing debt, almost all price is inflation. Aggregate consumer prices inflate with the deposit interest rate so that deposit interest on existing productive investment can be paid into the unearned income pool without disrupting the productive economy. Increasing interest rates to manage inflation increases the flow of deposits from the productive sector to the investment sector by increasing the unearned income pool. It is no longer possible to combat inflation by substantially increasing interest rates (or to stimulate growth by reducing them) because modest increases in interest rates are now enough to drive the economy into recession.


Foreign ownership of a part of a debtor economy causes asset inflation there because there are more domestic deposits available to fund the exchange of assets remaining in domestic ownership.


The supply of new electronic cash (not debt) to businesses to fund virtual increases in minimum wages does not necessarily cause immediate increases in prices because the E-Note injections are not part of production costs and some of the extra wages will be used for private debt retirement.




In a debt-based system, the interest banks charge their clients to provide goods and services (the bank spread) is part of productive economic activity and does not cause inflation. When the bank spread and costs are constant, the larger the total debt of a nation the larger the turnover of the banks and the more profit they make.


Deposit interest paid by banks to their clients is not specifically beneficial to the banks but is the fundamental source of systemic inflation in the debt-based financial system. Public credit and money issue enables domestic banking systems to operate in high growth, low risk, low interest, low inflation economies while retaining their existing profit margins.


Gross domestic product (GDP).


The nominal increase in GDP over any period equals the increase in National Saving, which is the gross capital formation less principal repayments over the same period.


Productivity growth is inherently deflationary. It usually affects prices rather than GDP and declines as an economy becomes more service-based. Except by utilising existing idle productive capacity, the only way to increase GDP is through new productive investment through the supply of new transaction deposits to make use of spare labour and resources in the economy or to increase the skills of and re-employ existing resources, and by the relationship between the production of capital goods and goods and services for consumption


Interest rate reductions stimulate an economic recovery only when the capital gains from the exchange of existing capital assets produce enough new debt to satisfy the systemic debt requirements of the financial system.


In a cash-free debt based economy with zero interest rates on deposits the increase in GDP equals the speed of circulation of debt in the productive sector times

(a) the change in domestic credit, less

(b) the current account deficit, plus

(c) a correction for any imbalance between the change in domestic credit and what the debt system requires taking into account the full productive capacity of the economy


Business cycles.


A recession provides for inflation but not economic growth, while a depression provides for neither economic growth nor inflation. A recession occurs when the change (increase) in the total debt (both public and private) over time is less than what is needed to service the financial system costs made up of the net unearned interest that has to be paid on all bank deposits plus any new current account deficit plus any increase in the productive debt used to generate new economic output. A depression is a deep recession that also fails to provide for inflation.


Income distribution.


Apart from utilisation of existing unused productive capacity, the additional production from new capital assets is the ONLY way to increase earned purchasing power in a debt-based economy.


The SHAPE of an economy, which is the basket of goods and services produced in relation to incomes and consumption patterns, is largely determined by its income distribution. Poor income distribution suppresses demand for domestically produced goods and services. Since the employed workforce is already producing goods and services, the SHAPE of the economy must change to improve economic efficiency and  promote domestic production.


Socially mandated income redistribution is necessary to distribute productivity increases throughout the economy and improve real wages and purchasing power. The application of a single flat financial transactions tax to all withdrawals from bank accounts changes the shape of the economy by redistributing income.




Skewed tax systems benefit a relatively small section of society at the expense of everyone else because they impair economic performance and economic growth potential by systemically transferring purchasing power from the productive sector to the unproductive sector through increased debt and debt servicing.


A uniform wealth tax on all net wealth from all sources is redistributive because it (gradually) reverses the accumulation of net wealth inherent in the presently dominant debt-based financial system. A single Financial Transactions Tax  (FTT) automatically collected on withdrawals from bank deposits can help correct the tax skew inherent in existing taxation systems that substantially exempt the investment sector from paying its “fair share” of tax.


Consumption (with housing).


Most residential housing is economically unproductive once it has been built, thought its construction is part of the productive economy. Residential housing that does not generate income is incompatible with a financial system based on interest-bearing debt.


Assuming incomes are constant and there are no productivity gains or realisation of capital gains through asset inflation, homeowners must reduce their domestic consumption by an amount equal to the principal and interest payments they make on their non-productive capital assets. The reduction can be (partly) offset through capital gains. Realised values from the exchange of existing assets must in that case increase by an amount sufficient to cover both the interest and principal repayments. The reduction in domestic consumption must otherwise be matched by the export of the resulting surplus consumption goods and services if structural unemployment and recession are to be avoided


The process of production and consumption in the productive economy is self-cancelling wherever it takes place and however its phases of production and consumption are shared amongst nations. Export of surplus consumption goods and services to avoid structural unemployment and recession decreases foreign ownership of the domestic economy. It does not directly improve domestic wellbeing in the exporting country.


Inclusion of a housing provision in a tax-free guaranteed minimum income  (GMI) system allows close matching of the GMI to existing government income transfer structures in many industrialised countries


Capital formation.


Capital formation in a debt-based economy takes place in accordance with the basic tenet of orthodox economics that National Saving equals Productive Investment. It arises from the redistribution of employee income and gross operating surpluses of businesses to purchase the capital goods created by the productive economy. Production must always, but only just, lead consumption to provide the incomes that enable consumption to take place.




In the modern world, faster depreciation has swapped longer-term productive investment to boost existing stock and existing property prices. Saving for productive investment and real GDP growth as measured using the international System of National Accounts cannot be restored to modern developed economies unless the protocols around depreciation are altered, bank lending polices and regulations reviewed and the serious distortions in the System of National Accounts (SNA) records themselves are corrected.


In a debt-based financial system and in the absence of a debt bubble it is impossible to increase National Saving (and therefore GDP) without increasing production loans and new productive investment. In the absence of asset inflation, any attempt to withdraw any part of deposits for non-productive investment purposes (“savings”) reduces purchasing power in the productive economy or leaves capital goods unsold, leading to increases in inventory, and subsequent unemployment and recession. Unproductive savings and pension schemes such as Kiwisaver in New Zealand directly lead to recession and/or deflation.




The investment sector represented by the accumulated net after tax interest paid on bank deposits produces nothing itself and is paid for through inflation in the productive sector. Increased depreciation allowances speed up principal repayments and reduce national saving and productive investment. Increased repayment of debt, including household debt, reduces national saving and reduces net new productive Investment.


The accumulated net outstanding principal invested in productive capital goods is equal to the net accumulated national saving because in a competitive market economy the long-run economic profit of business tends toward zero as profit falls toward the opportunity cost of capital. Productive investment represents the redistribution of production incomes to clear the capital goods market in the productive sector.


Economies in recession must be stimulated by direct investment in new production because the lead-time before the benefits of increased productivity from infrastructure investment exceed the infrastructure costs is usually too long to be effective.


System of national accounts.


The use of depreciation for measuring economic success has been catastrophic for the world economy.


When the current account balance is included as income in the national income and outlay account of the SNA an entry of equal value entitled “purchase of capital assets on the current account” should be included on the other, “use of income”, side of the national income and outlay account.


The National income and outlay account of the SNA needs to be restructured and the National capital account consequentially adjusted to reflect orthodox economic theory as follows:


Use of income side:

=  Final consumption C

+  Purchase abroad of non-productive capital investment goods (=CA)

+  Saving for productive investment S                                                                                        


Income side:

=  GDP

+  Current account balance (CA)

less the balance on external goods and services

less repayments of principal on outstanding productive investment.


Current account.


Current account transactions are exchange transactions, not production transactions. To avoid bankruptcy of the world economy in the long run, each nation must maintain, in aggregate, a zero accumulated current account.


There is no such thing as foreign debt; there is only foreign ownership by foreign creditors of part of a debtor’s nation’s economy either as physical ownership or ownership of commercial paper. An accumulated national current account deficit reduces national savings and increases the domestic debt of the debtor country, its domestic inflation and foreign ownership of its economy. Foreign ownership of a debtor nation’s economy drains its domestic economic growth through outgoing current account payments of interest on commercial paper and dividends and profits arising from the physical foreign ownership of its assets.


The debtor status of debtor countries can only be managed without affecting their domestic economies if their exchange rates are reduced so their current accounts become positive enough to reverse the foreign ownership of their assets. In the absence of effective management of capital flows and the exchange rate, the logical outcome of the existing debt system in heavily indebted debtor countries is national bankruptcy because debtor countries are condemned to paying high interest rates to avoid capital flight.


Exporting domestic production (“export-led recovery”) is an unsatisfactory method for reducing an accumulated current account deficit unless the accumulated deficit is small and the exchange rate is free to fluctuate independently of domestic interest rates.


At any point of time, the current account deficit in heavily indebted debtor countries is typically just a little more than:


a) the accumulated current account deficit of the debtor country, multiplied by the average bond rate in the debtor country, minus

b) the trade balance of the debtor country for the period, plus

c) the net repatriated profits of foreign-owned banks operating in the debtor country  over the same period.


A positive balance on external trade swaps domestic growth in the exporting country for foreign assets in the debtor country and is a positive growth factor for the exporting country’s business interests. The logical outcome of the existing debt system in creditor countries is zero deposit interest and stable or falling asset prices (as in Japan).


A tax-neutral variable Foreign Transaction Surcharge (FTS) applied to all outward exchange transactions allows the progressive reduction in foreign ownership of the domestic economy (the so-called foreign debt) by enabling the exchange rate to fall towards a stable base level,  increasing the value of exports and decreasing the quantity of imports, and providing a more even playing field for local manufacturers and producers.



Existing privately issued interest-bearing government debt can be progressively retired as it matures and replaced with publicly issued interest-free debt or E-notes spent into circulation by the Government. E-notes (electronic cash) perform exactly the same role as existing bank debt.


Zero or low interest credit and money issue enables economic growth to be tied to the productive economy instead of being inflated by deposit interest.


Local money systems.


Local money systems are co-operatively owned interest-free, self-cancelling monetary systems in which there is no systemic debt because the debt incurred during the production phase is cancelled when the product or service is sold. They can be organised nationwide and taxed in formal currency, promote domestic production, increase economic efficiency and reduce financial leakage from local economies.



Appendix : The Debt Model based on a revision of the Fisher Equation.


Click here to see a visual form of the debt model.


The debt-based economy can be expressed as a simple variation of the original Fisher Equation of Exchange:


GDP (Total economic output measured as gross domestic product PQ, being the quantity Q of goods and services produced times their price level P) = Vy ( the speed of circulation of My) times My (the transaction deposits actually used to generate PQ)


 in the form:


GDP = Vy *(DC - (Ms +Dca +Db ) + M0y  )                                  


Where My  = GDP/Vy  = DC - (Ms  +Dca  + Db) + M0y     and:


My    =  The  deposits actually used to generate productive output  and My = Mt + M0y where  Mt is  the transaction deposits representing productive debt  Dt, and  M0y = The residual cash in circulation included in My that is used to contribute to productive output,


Dca      = The whole of the debt created in the domestic banking system to satisfy the accumulated current account deficit 1.


Ms    = The net after tax accumulated deposits arising from unearned deposit income on the total domestic banking system deposits M3 (excluding repos) 2.


DC   =  Domestic Credit,


Ds     =  the residual needed to satisfy the equation  DC = Dt  + Dca3 + Ds  and the debt  Dt is numerically equal to the deposit Mt.                 


Db    = The  “bubble” debt, the excess credit expansion or contraction in the banking system such that  Ds - Db  = the debt supporting  the accumulated deposit interest Ms defined above.  Db can be positive or negative”.


The debt model can be expressed and used in its differential form to quantify macroeconomic outcomes over any chosen time period.


1. This is greater than the monetary deposits Mca because the banking system may have sold commercial paper to borrow foreign currency to satisfy the foreign exchange settlement requirements.

2. Repos refer to inter-institutional lending 

3. Arguably the accumulated sum of capital transfers could be included here, in which case the net international investment position (NIIP) would be used instead of the accumulated current account. The decision affects the size of the “residual” Db.



"Money is not the key that opens the gates of the market but the bolt that bars them."

Gesell, Silvio, The Natural Economic Order, revised English edition, Peter Owen, London 1958, page 228.



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