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Edition 01 : 13 September,
2012.
Edition 05 : 30 January, 2012.
(VERSION EN FRANÇAIS PAS DISPONIBLE)
Summaries of monetary reform
papers by L.F. Manning published at http://www.integrateddevelopment.org
The
referenced papers :
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 MANNING PLAN
FOR PERMANENT DEBT REDUCTION IN THE NATIONAL ECONOMY
By
19B
T
+64 4 2986890
24 January, 2014. Final version 10
for publication.
All Rights
Reserved.
THE MANNING PLAN
FOR PERMANENT DEBT REDUCTION IN THE NATIONAL ECONOMY
EXECUTIVE SUMMARY FOR INTERNATIONAL APPLICATION.
Introduction.
A low risk
politically acceptable and practical way to resolve the world debt crisis
without sudden or radical change to the world’s financial system is presented.
It is worked out for conditions in
Three administrative
institutions are introduced:
A national debt management
authority (NDMA),
A national public development
fund (NPDF)
A national public investment
trust account (NPITA).
The plan is based on specific
forms of UBI and DJI structured to avoid inflation. Parameters can easily be
adjusted so that incomes match the physical and human resources available to
the economy. The plan provides for control of secondary on-lending to
avoid any risk of inflation exceeding
1.3%.
Debt
jubilee.
All legal residents
receive a weekly basic income payment of about
€ 63 ( US$ 84). This goes into a special personal UBI account. For
businesses a weekly payment of € 63 (US$ 84) goes into a DJI account for each
Full Time Equivalent (FTE) employee registered under a PAYE (Pay as You Earn)
or equivalent tax system.
Parameters suitable
for each country will vary. As a very
rough guide, the total annual
amounts involved could be to the order of
€ 5 billion (US$ 6.65 billion) for each million people, of which about €
3.75 billion ( US$ 5 billion) for
Universal Basic Income (UBI) and € 1.25 billion (US$ 1.65 billion) for Business
Debt Jubilee Income (DJI). The money to make the payments will be created
debt-free and interest-free by a publicly-owned Central (or Reserve) Bank and
administered by the NDMA
The payments made to
indebted persons and businesses will be used to retire their bank debt. The
payments made to non-indebted persons and businesses will be invested in a
National Public Development Fund (NPDF) that will pay tax-free interest on the
deposits at around 2.3%/year, a figure comparable to the existing average
deposit interest rate after taking reduced inflation and taxation into account.
The NDPF money will be used to fund new productive development both public and
private. NPDF acts as a publicly owned Savings and Loan institution for the
purposes of new productive investment.
In
Public debt.
Existing government debt will be replaced as it matures by debt-free
interest-free credit created by the Central Bank for the NDMA. This does not
increase banking system deposits so the process cannot be inflationary. Money
to fund new government investment will initially be sourced from the NPDF using
deposits from non-debtor UBI and DJI accounts.
National
public investment trust account (NPITA).
Bank deposit
holders will be able to invest in a National Public Investment Trust Account
(NPITA) that will act as a publicly-owned Savings and Loan institution to
manage the on-lending of deposits to fund the exchange of existing assets and
to provide personal loans (including student loans and credit cards).
Bank
balance sheets.
Under the plan,
bank balance sheets will still grow, but over time there will be little bank
debt remaining. Instead, secondary lending will be 100% backed by monetary
deposits. Banks will be paid a spread of around 1.7%/year for their services,
comparable to what they get now after taking into account that their lending
under the new system is practically risk free as normal debt repayment is
guaranteed through the Universal Basic Income (UBI) and Debt Jubilee Income
(DJI) accounts.
Interest on NDPF and NPITA investments.
New money for
interest paid on UBI/DJI balances invested with NPDF and to depositors
on-lending their deposits through NPITA will be supplied debt-free and
interest-free by the central bank.
EXECUTIVE SUMMARY FOR
1. This plan offers
a very low risk way to resolve the world debt crisis without sudden or radical
change to the world financial system. It brings together a number of ideas such
as Universal Basic Income (UBI), Debt Jubilee Income (DJI), and Quantitative
Easing (Monetary Dialysis) that are already receiving some attention but cause
concern to some policy makers when they are considered in isolation. The plan
can be implemented quickly and unilaterally.
2. The plan is
based on specific forms of UBI and DJI structured to avoid inflation. The plan
avoids most inflation because it can easily be adjusted so that incomes match
the physical and human resources available to the economy.
3. The Manning Plan
sets out implementation details for
4. The total
Universal Basic Income payments are initially about NZ $23 billion/year and the
total Debt Jubilee Income payments are initially about NZ$7 billion/year. The
money to make the payments will be created debt-free and interest-free by the
Reserve Bank and administered by a New Zealand Debt Management Authority
(NZDMA).
5. The payments
made to indebted persons and businesses will be used to retire their bank
debt. The payments made to non-indebted
persons and businesses will be invested in a New Zealand Public Development
Fund (NZPDF) that will pay tax-free interest on the deposits at around
2.3%/year, a figure comparable to the existing
average deposit interest rate after taking into account reduced
inflation and taxation. The NZDPF money will be used to fund new productive
development both public and private. NZPDF acts as a publicly owned Savings and
Loan institution for the purposes of new productive investment.
6. About NZ$ 15
billion of bank debt will be retired during the first year, leaving new
deposits of about NZ$15 billion, roughly similar to the present financial
system.
7. Bank deposit
holders will be able to invest in a Public Investment Trust Account (PITA) that
will act as a publicly-owned Savings and Loan institution to manage the
on-lending of deposits to fund the exchange of existing assets and to provide
personal loans (including student loans and credit cards).
8. Bank balance
sheets will still grow, but there will be little bank debt. Instead, secondary
lending will be 100% backed by monetary deposits. Banks will be paid a spread
of around 1.7%/year for their services, comparable to what they get now after
taking into account that their lending becomes largely risk free. Normal debt
repayment is guaranteed through the Universal Basic Income and Debt Jubilee
Income accounts.
THE MANNING PLAN FOR DEBT REDUCTION
1. Establish a private Universal Basic
Income (UBI) Account for every legal resident. The UBI is described in
paragraph 2. The UBI provision will apply only to individual people. The
account will record the outstanding household and consumer debt of each
individual. Jointly held debt will be shared among those adults in the household
who are jointly and severally liable for that debt. Individual debt, such as student and credit
card debt will be assigned to the individual who holds it. The debt accounts
will be dynamic: new debt incurred and debt repayments made will be automatically
registered on the private Universal Basic Income account.
2. Pay every legal resident a weekly
debt-free, interest-free Universal Basic Income funded from the central bank. The
amount of the UBI will be variable so that it matches the ability of the
economy to absorb the debt-free, interest-free cash injection. The UBI will be
managed by a New Zealand Debt Management Authority (NZDMA) set up for the
purpose of administering the Manning Plan [1]. A Universal Basic Income of
NZ$100/week will amount to about NZ$23 billion/year.
3. The UBI will be funded by
means of debt-free, interest-free credit created by the central bank and
deposited in the UBI accounts managed by the NZDMA. The credit could be called
sovereign or treasury credit created by the central bank on behalf of the
government, and it mirrors the way government funding is created at present
except that it will be done internally without the need to issue interest-bearing bonds to private banks and
financial institutions.
4. The UBI will be used to automatically
and directly reduce the debt of individuals carrying debt. Existing household
bank debt will progressively be set off against the UBI cash injection
(paragraph 2) used to repay it. About 36% of the NZ$23 billion annual UBI
payments (paragraph 2) or more than NZ$ 8 billion will be used to extinguish
bank debt until nearly all bank debt has been repaid [2]. NZ$ 14.7 billion of the new debt-free,
interest-free, UBI payments will be paid out to non-debtors compared with an
average of NZ$16.4 billion of new bank debt issued annually in New Zealand
during the period from the end of March 2002 to the end of March 2012 [2].
Deposit growth under the Manning Plan will therefore be less than it has been in
the past while existing household bank debt will fall quickly as it is repaid.
5. All Universal Basic Income payments made
to those people (initially about 64% of the population in New Zealand,
including children) who are not in debt [2] will be loaned by the New Zealand
Debt Management Authority on their behalf to a New Zealand Public Development
Fund (NZPDF) to be established by the NZDMA at an interest rate to be set by
the NZDMA from time to time. The interest rate will reflect inflation of, say,
1.3 % plus a margin of, say, 1% to reflect the average interest rate on all
deposits. The interest payments payable by the NZPDF on the on-loaned UBI
deposits would be tax-free. On the above figures, the net real interest rate
payable by the NZPDF would be about 2.3% compared with the comparable average
existing net real deposit interest rate in New Zealand of about 2.4% [3].
The NZPDF does not
have to on-lend all of the deposits it receives from the UBI accounts. The
NZPDF could keep some of the residual NZ$14.7 billion (paragraph 2) to enable
the government to reduce taxation or repay government debt, or it could decide
to hold substantial balances in its accounts should that be required for system
stability. The direct cost of any of the three options is the interest that the
NZPDF pays into the citizens’ individual UBI accounts on those amounts it does
not lend for productive investment.
A basic flow
diagram for the Manning Plan is provided as APPENDIX A.
6. Establish a Debt Jubilee Income (DJI)
account with the NZDMA for every
The DJI is described
in Paragraph 7. The account will record the outstanding debt of each individual
business. The debt accounts will be dynamic: new debt incurred and debt
repayments made will be automatically registered on the Debt Jubilee Income
account.
7. Pay every qualifying company a monthly
debt-free, interest-free Debt Jubilee
Income (DJI) funded from the central bank. The amount of the DJI will be
variable so that it matches the ability of the economy to absorb the debt-free,
interest-free cash injection. The New Zealand Debt Management Authority (NZDMA)
will manage the DJI. A Debt Jubilee Income of NZ$100/paid Full Time Equivalent
(FTE) employee/38.45 hour week will amount to about NZ$7 billion/year [5].
8. The DJI will be funded by
means of debt-free, interest-free credit created by the central bank and
deposited in the DJI accounts managed by the NZDMA. It could be called
sovereign or treasury credit created by the
central bank on behalf of the government, and it mirrors the way government
funding is created at present except that it will be done internally without the need to issue
interest-bearing bonds to private banks and financial institutions.
9. The banks will use the DJI (paragraph 8)
distributed through NZMDA to automatically and directly reduce the
(non-transaction account) bank debts of businesses carrying
non-transaction account bank debt. Existing business bank debt other than
transaction account debt will be set off against the DJI cash injection used to
repay it. Since most businesses carry some bank debt, most of the NZ$7 billion
annual DJI payments [5] will be used to extinguish bank debt. Net business
deposit growth from new investment supplied from the NZPDF will therefore
initially be similar to what it has been in the past while business bank
debt will fall quickly as it is repaid from the businesses’ DJI accounts.
10. Debt Jubilee Income payments made to DJI
account holders that are not in debt will be loaned to the NZPDF at an interest
rate to be set by the NZDMA from time to time. The interest rate will reflect
inflation of, say, 1.3 % plus a margin of, say, 1% to reflect the average
interest rate on all deposits. The interest payments on the DJI deposits loaned
to NZPDA would be tax-free and paid from new central bank money created
debt-free and interest free. The interest funding will be supplied to NZDMA by
the central bank and passed to NZPDF for distribution. On the above figures,
the net real interest rate would be about 2.3% compared with the comparable
average existing net real deposit interest rate in New Zealand of about 2.4%
[3].
The NZPDF does not
have to on-lend all of the deposits it receives from the DJI accounts. The
NZPDF could keep some of the residual it receives to enable the government to
reduce taxation or repay government debt, or it could decide to hold
substantial balances in its accounts should that be required for system
stability. The direct cost of any of the three options is the interest that the
NZPDF pays into the businesses’ individual DJI accounts on those amounts it
does not lend for productive investment.
The basic flow
diagram for DJI is shown in APPENDIX A.
11. In
12. A unit in the Audit Office will monitor the
Debt Jubilee Income working alongside the Department of Inland Revenue [6].
13. Existing government debt
will be replaced as it matures by debt-free interest-free credit created by the
Central Bank for the NZDMA. New money to fund government and local government
investment will be sourced (at least initially) from the New Zealand Public
Development Fund (NZPDF) that receives deposits from the non-debtor UBI and DJI
accounts.
Once most existing bank debt has been repaid and the need to sterilise
the Universal Basic Income and Debt Jubilee Income payments made to non-debtors
is reduced, the Central Bank may begin
issuing some debt-free-interest-free credit directly to the NZDMA for public
development instead of using investment
funding from the Universal Basic Income and Debt Jubilee Income accounts.
Replacing maturing government debt with Central Bank credit paid through NZDMA
does not increase banking system deposits so the process cannot be
inflationary. On the other hand, new public debt-free interest-free money
issued by the central bank through the NZDMA and passed directly to the
treasury for productive development
would increase deposits in the banking system as it is spent into circulation
and could therefore be slightly inflationary.
14. The
NZDMA will manage the Universal Basic Income level (paragraph 2) and the
business Debt Jubilee level (paragraph 7) to ensure the issue of new credit
matches the needs of the economy as a whole so as to keep inflation at or below
about 1.3%. The new credit injection includes a sum equal to the deposit and
risk premium interest paid by borrowers to PITA as set out in paragraph 24.
NZPDF will invest the new credit injection in new productive development as
shown in Appendices A and B.
15. The Manning Plan could be
designed for zero deposit interest and zero inflation, but many individuals and
institutions presently depend on unearned income (deposit interest). The Plan is designed to
accommodate a real interest rate at about the same level as in the present
financial system to avoid overly distorting existing net real average deposit
incomes, especially for the elderly and for pension funds. It will also prevent
existing deposits leaking into consumption where they would create demand-pull
inflation in the productive economy, a problem inherent in the large existing
deposit base that other public credit proposals have failed to take into
account.
16. The deposits on-loaned by those receiving
a Universal Basic Income (paragraph 2) or Debt Jubilee Income (paragraph 7)
represent secondary debt the treasury borrows from the public
through the NZPDF (paragraph 5) to fund the creation of new productive assets,
both public and private, (and which could also include government investments
in education and health care, especially primary health care). The UBI/DJI
accounts held by residents and businesses will separately record the interest
balance. The interest paid by the NZPDF to non-debtor adult UBI account holders
(those aged 18 years and older) and non-debtor DJI businesses will be available
to them on demand. Adult account holders and businesses will be issued a NZPDF
debit card so they can draw down their available interest balance and check
their debt or investment balances. The interest balances of those UBI account
holders under 18 years of age would accrue to provide them with a fund for
personal use (such as education or a home deposit) once they turn 18.
17. As soon as the Manning Plan becomes
operative the banks would immediately cease to create new private
interest-bearing debt and its corresponding deposits for the purpose of funding
the purchase of new or existing capital assets, though they will continue to
fund day to day productive transaction accounts. The New Zealand Debt
Management Authority will regulate the interest rates charged on transaction
account debt when required, and set supplementary capital reserve requirements
to ensure there is a full 100% reserve backing for all financial system
deposits once bank debt (excluding that supporting the productive transaction
accounts) has been repaid. The 100% reserve backing will also extend to the
productive transaction accounts that, in
18. The debt repayments made through the
UBI/DJI accounts will be in addition to the normal contractual debt repayments
made by individual and business debtors to private commercial banks under their
existing loan agreements with their customers. The enabling legislation will
ensure that normal banking practice is continued until all existing bank debt
except that supporting productive transaction accounts has been fully repaid
but with:
(a) the repayment periods adjusted to take
account of the accelerated principal repayments made from the Universal Basic
Income and Debt Jubilee Income accounts and
(b) the interest rates on the debt adjusted
downward as set out in paragraph 19.
19. The NZPDF may license private commercial
banks to act as intermediaries in the production and exchange of new capital
assets. The NZPDF will lend to the licensed banks at the same interest rate it
pays on what it borrows from the Universal Basic Income and Debt Jubilee Income
accounts held by individuals and businesses. That interest shall be included in
the bank-intermediated loan interest rates. The commercial banks’ interest rate
on intermediated lending will then be made up of:
(a) The NZDPF funding rate that the banks will
pay to NZPDF plus
(b) A bank spread up to a maximum (probably
less than 1.7%) set by NZDMA from time to time to reflect the zero risk of
lending in a system where repayment is guaranteed through the UBI and DJI
accounts. In practice this will provide
funding for the production and exchange of new capital assets at less than 4%
interest per annum.
20. The private commercial banks will be
required to follow strict investment guidelines set by the NZDMA and
administered by NZPDF. Rather than competing on the basis of cost the banks
will need to focus on better service to their customers.
21. Most existing banking system deposits have
been alienated from the original debt from which they were created. In
aggregate, borrowers hold the debt while non-borrowers hold the corresponding
deposits. The original household and business bank debt is progressively repaid
through the UBI/DJI accounts using new interest-free and debt-free money, (as
well as through orthodox debt repayment referred to in paragraph 18). The new
deposits accruing to non-debtors in the UBI/DJI accounts are invested with the
NZPDF. The existing bank generated individual and business debt remaining in
the banking system declines as it is repaid.
22. To avoid unrestrained increases in total deposit
interest (and hence inflation) that would result from increasing the speed of
circulation of the deposit base by multiple on-lending of deposits, the Manning
Plan will manage the increase in secondary debt arising from on-loaned banking
system deposits. Currently in
23. The NZ Debt Management Authority will
establish a Public Investment Trust Account (PITA) to manage the supply and
price of secondary debt and will supply debt-free and interest-free money to
fund the interest banks pay on deposits (b), (c), (d) and (e) set out in
paragraph 27 that are not on-loaned
to PITA by depositors. The deposit interest paid on bank deposits to non
investors will be set by the NZDMA at a level up to about 1.3%.and to PITA
investors will together produce systemic inflation that will be held at or
below about 1.3% as in paragraph 5.
24. The Public Investment Trust Account
(paragraph 23) will accept term investments from deposit holders and establish
several risk categories for deposit holders who seek a higher interest rate
than what is needed to cover inflation (below 1.3% per annum). Among the
highest risk categories will be special categories for unsecured personal
loans. The supplementary interest rate applying to each risk category will be
managed so as to adequately allocate secondary lending for the purposes of
exchanging existing capital assets and funding personal loans. No secondary debt funding will be made
available for commodity speculation or the purchase of derivatives. The deposit
interest including the risk premium paid by borrowers to investors through PITA
will be injected into the financial system by the NZDMA through the operations
of the NZPDF referred to in paragraph 14.
25. PITA may license private banks and
non-bank institutions to act as intermediaries in the exchange of capital
assets and to provide personal loans. It will lend the deposits invested with
it by individuals and businesses to the licensed banks and non-bank
institutions at the same interest rate paid by NZDMA on bankings system
deposits that are not invested with
PITA (paragraph 14) plus the
interest rate surcharge applicable to the PITA risk category. That interest
shall be included in the intermediated loan interest rates and paid to PITA by
the borrowers or to intermediating banks and non-bank institutions as the case
may be. The banks’ and non-bank institutions’ interest rate on intermediated
lending will then be made up of:
(a) The PITA funding rate passed to PITA
investors (those bank deposit holders who have chosen to invest with PITA) plus
(b) A bank spread up to a maximum (probably
less than 1.7%) set by NZDMA from time to time to reflect the low risk of
lending in a system where non-business repayments are guaranteed through the
Basic Income accounts.
A flow chart for PITA is shown
in APPENDIX B.
The licensed banks
and non-bank institutions will regularly report on their allocation of loan
funding sourced from PITA according to the different risk categories, ensuring
that both the total secondary debt and the distribution of that secondary debt
among the different risk categories are known at all times.
For purposes of
illustration only, the risk margin on secured residential assets might be 1%
bringing New Zealand home loan rates down to about 4%/year (1.3% inflation +
1.7% bank spread + 1% risk margin), while the risk margin on secured business
assets might be 2%, bringing interest for them down to about 5%/annum. The risk categories for partially secured or
unsecured loans would be considerably higher. The weighted average interest
paid on all deposits would be set to about 2.3% as in paragraph 5.
26. The licensed banks and non-bank lending
institutions on the one hand and PITA investors (those bank deposit holders who
have chosen to invest with PITA) on the other hand will equally bear the cost
of defaults on loans originating with licensed banks and non-bank lending
institutions [7]. Since any bank and non-bank institution losses are likely to
be funded from the applicable bank spread the banks and non-bank institutions
are likely to adopt a cautionary approach to risky lending. The PITA investors’
share of loan default losses will be periodically calculated for each risk
category and deducted by PITA from the funding rate PITA investors are paid
under paragraph 25(a).
27. At any time under the Manning Plan the
banking system deposits are made up of:
(a) The new debt-free money invested by
UBI/DJI non-debtor account holders in NZPDF in so far as that money has been
on-loaned by the NZPDF either directly or through licensed banks for productive
capital investment (paragraph 5), initially about NZ$14.7 billion/year (paragraph 4).
(b) New deposits arising from new direct
government spending that is not funded from the Universal Basic Income or Debt
Jubilee Income accounts. This would probably be quite small to begin with but
could eventually total several NZ$ billion/year. The new debt-free
interest-free money backing the deposits would be issued by the central bank
through the NZDMA to the treasury at the request of the government.
(c) Existing household and business
non-transaction account deposits held by debtors outside of the UBI/DJI
accounts. [8].
(d) Existing household and business
non-transaction account deposits held by non-debtors outside of the UBI/DJI
accounts. [8].
(e) Deposits arising from the payment of
interest on bank deposits by NZPDF, by NZDMA to banks on deposits not invested with PITA and the sum
equal to the deposit interest including the risk premium paid by borrowers to
investors through PITA (paragraph 24).
(f) Transaction account deposits.
The average annual increase
in deposits in
28. Government, business, individual residents
and banks would all benefit from the Manning Plan. The government would benefit
because it would have an ongoing domestic non-bank, non debt-based development
fund available at low cost for public investment, and the ability to easily
raise or retire government debt. The main benefits for business are the on-going
debt jubilee, cheaper loans and the absence of boom-bust business cycles.
Business would also benefit from the increased demand for public infrastructure
work, from new consumption generated through any tax reduction and through the
expenditure of interest received on the UBI/DJI accounts. Existing individual
debtors would benefit from rapid reduction in their debt, and those who are not
debtors would benefit from increased spending power as well as from cheaper
loans and a stable, growing economy [9]. Young people will benefit from having
a “savings” fund available to them when they turn, say, 18 years of age. Banks
will benefit from very low default rates, and a steady, almost risk-free
increase in income from their balance sheet expansion.
29. The Universal Basic Income paid to
individual debtors and the Debt Jubilee Income paid to indebted businesses will
decrease deposits (bank liabilities) and
loans (bank assets) by the same amount so that the banks’ net worth will not be
affected. The on-lending by NZDPA for new capital assets and PITA for existing
capital assets and personal loans will also create equal increases in the
banks’ assets and liabilities so they will not affect the banks’ net worth
either. The banks’ assets will also increase by the e-note cash they receive
from the new money injected through the NZDMA into the banking system for
direct investment and interest payments, and their customer deposit liabilities
will again increase by the same amount. Overall, the banks’ balance sheets will
continue to expand, even through the initial period of debt repayment, though
possibly at a slower overall rate than at present. The main change in banking
practice will be that all deposits will eventually be 100% backed by money
(including the productive transaction accounts backed by bank capital) and
there will be no interest-bearing bank debt in the financial system
except that supporting the productive transaction accounts.
30. The NZDMA accounts will be held
in trust for all legal residents. Its balance sheet would grow quickly but it
will not normally hold large monetary balances. A large portion (about 36%) of
the debt-free interest-free e-notes it issues to individuals’ UBI accounts
during the initial period and most of the debt-free interest-free e-notes it
issues to businesses’ DJI accounts during the initial period will be promptly
cancelled through compulsory residents’ and businesses’ debt repayments. All
remaining debt-free interest-free credit except interest payments deposited in
the UBI and DJI accounts or paid as deposit interest to licensed commercial
banks and non-bank institutions will be initially be represented by loans from
the UBI and DJI account holders to NZPDF. The proportion of new credit invested
with NZDPF will increase as existing bank debt is retired. A substantial
proportion of other (that is, existing) deposits will be invested with PITA.
The PITA assets will be the (secondary debt) loans it (or licensed banks and
non-bank institutions acting on PITA’s behalf) makes to those needing funding
to exchange existing assets and for personal loans. The PITA liabilities will
be the deposits it has borrowed from those deposit holders who choose to lend
to it as shown in Appendix B. The banking
system deposits available for on lending by deposit holders to PITA will
increase at about the average deposit rate (about 2.3%/year in the illustrative
example for
31. The Manning Plan remains fully flexible at all times. Its primary elements, namely the Universal
Basic Income rate, the Debt Jubilee Income rate, the interest rates paid on
NZPDF and PITA investments, the level and nature of NZPDF and PITA investments,
and any tax reductions, can all be varied easily. Since the Manning Plan is entirely domestic,
it cannot be directly affected by current account considerations, although it
would best be implemented together with the Foreign Transactions Surcharge
proposed in the working paper attached below as APPENDIX C.
CONCLUSION.
Individuals and
businesses will quickly see the benefits of the Manning Plan but there will be
few visible changes in banking services.
Individuals and businesses will still have debts and deposits. Debtors
will still pay interest on and repay their debt. Deposit holders will still receive interest
on their deposits (other than productive transaction accounts) except there
will be no tax deducted from that interest[10]. The main changes will be in the
pathways
for investing deposits and applying for loans insofar as investing and lending
will be managed on a Savings and Loan basis by two public institutions. The New Zealand Public Development Fund
(NZPDF) will manage lending for new productive investments while the Public
Investment Trust Account (PITA) will manage the on-lending of existing deposits
for the exchange of existing assets and for making personal loans. Since NZPDF
is likely to license commercial banks as intermediaries and PITA is likely to
license both commercial banks and non-bank institutions as intermediaries, the
administration of loans may not appear very different to bank customers.
END NOTES.
[1]
[2] Statistics New Zealand data suggest that
about 82% of two-adult households in New Zealand and more than 50% of one-adult
households are in debt. Single person and single parent households make up
about 50% of all households, and there are about 1.4 million households in
[3] As of July 2012 the banks’ average
“funding” rate (the average interest the banks pay on deposits) was 3.67%
(according to Reserve Bank of New Zealand data series C10 – the average
interest rate on loans was 5.79% and the bank spread or gross margin was
5.79-3.67 or 2.12%). Allowing for an
average tax rate on interest of 20%, the present tax-paid return to depositors
is about 2.9%. Systemic inflation in
[4] According to Reserve Bank of New Zealand
statistics Table C3 Monetary Aggregates (historical) the monetary base
(M3-repos) increased from NZ$127.1 billion in July 2002 to NZ$ 244.7 billion in
July 2012, giving an average increase of about NZ$11.8 billion/year over the
past decade. Since the
[5] The relevant data for
[6] The mandatory penalty for fraudulent reporting
of employees and/or worked hours might be the permanent exclusion of that
business from the business Debt Jubilee as well the permanent exclusion of any
other businesses subsequently established or purchased by any of that company’s
directors. However, the likelihood of
abuse is modest because, in the majority of cases, the income tax rates applied
to incomes in
[7] Similarly, if PITA lends directly to
individuals and businesses for non productive investment or partly secured or
unsecured personal loans, PITA will bear half of any default loss and the PITA
investor the other half. The difference between such direct PITA loans and
licensed bank and non-bank lending is that PITA may choose to include only some
or none of the lending spread in the interest rates it charges. In practice it
is likely PITA would restrict any direct lending to low risk investments.
[8] Not all of the deposits used to fund items
that make up a current account deficit are returned to the domestic economy. In
-NZ$55 billion.
That means NZ$55 billion of the deposits created by the
[9] The Manning Plan is designed to protect
pensioners and pension funds. Pensioners will receive much the same net return
on bank deposits as they do under the existing banking system. There will still
be an active investment sector that will enable pension funds to invest and grow.
[10] Informal lending among individuals,
families, and firms may also occur just as it does under the existing
debt-based financial system. Such lending represents unrecorded secondary debt,
but its volume would be minimal in the context of the total secondary debt. Any
interest paid on informal secondary debt is also unrecorded but small. Only
banks and non-bank institutions licensed by PITA will be legally permitted to
create secondary debt for the exchange of existing assets and for personal
loans. Likewise, only banks licensed by NZPDF will be legally permitted to
create secondary debt for the production and exchange of new productive assets.
Informal lending for profit would become an offence.
11/09/12
APPENDIX A : SYSTEM FLOWCHART.
APPENDIX B : FLOW CHART FOR PUBLIC
INVESTMENT TRUST ACCOUNT FOR THE MANAGEMENT OF SECONDARY DEBT.
APPENDIX C : USING
A FOREIGN TRANSACTIONS SURCHARGE (FTS) TO MANAGE THE EXCHANGE RATE.
THE REFERENCED PAPERS
The
referenced papers :
00. Summary of papers published.
01. Financial system mechanics explained for the first time. “The Ripple
Starts Here.”
02. How to create stable financial systems in four
complementary steps.
03. How to introduce an e-money financed virtual minimum
wage system in New Zealand.
04. How to introduce a
guaranteed minimum income in New Zealand.
05. The interest-bearing debt system and its economic
impacts.
07. The DNA of the debt-based economy.
08. Manifesto of the debt-based economy.
09. Unified text of the manifesto of the debt-based
economy.
10. Using a foreign transactions surcharge (FTS) to manage
the exchange rate.
11. The Manning plan for permanent debt reduction in the national
economy.
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"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,
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