There is little doubt we as a country, and the global economy, is in a spiral of debt.
The New Zealand government’s national debt is just below acceptable levels [the rating agencies are watching], and household debt – our mortgages, car loans and credit card debt – is way above where it should be. It is at unsustainable levels.
Low interest rates are currently sparking another housing bubble and our high exchange rate is driving exporters to the wall.
Our Reserve Bank only has one weapon up its sleeve, the blunt instrument of raising or lowering interest rates. That is just not sophisticated enough in a digital global economy.
Meanwhile, our government, having lost income from lower tax takes (due to there being fewer people in work to pay tax), and fewer people buying stuff (causing lower GST income) is borrowing millions of dollars every week to make ends meet.
This money accrues interest and has to be paid back from the government’s tax take – which means less cash for infrastructure, health and education etc. Selling state assets will go no where near covering the debt the country has today, let alone in a year’s time.
However, if we think differently – and stop repeatedly doing what we know doesn’t work – there may be a way out of it.
Lowell Manning of the Sustento Institute has an idea that could change everything. Which brave politician will take one hour of their time to read, digest and act upon Manning’s thoughtful, insightful and worthwhile proposal?
Please find below the executive summary of the Manning plan for permanent debt reduction.
You can download the full Manning Plan here.
- 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.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.
- The Manning Plan sets out implementation details for New Zealand. Each New Zealand legal resident will receive about $100/week in a special Basic Income Account, and each business will receive about $100/week in a special Debt Jubilee Income account for each Full Time Equivalent employee employed by that business who is paid wages and salaries under the PAYE (Pay as You Earn) tax system.
- The total Universal Basic Income payments are initially about NZ $23 billion/year and the total Debt Jubilee Income payments are initially about NZ$7 billion/year. The money to make the payments will be created debt-free and interest-free by the Reserve Bank and administered by a New Zealand Debt Management Authority (NZDMA).
- The payments made to indebted persons and businesses will be used to retire their bank debt. The payments made to non-indebted persons and businesses will be invested in a New Zealand Public Development Fund (NZPDF) that will pay tax-free interest on the deposits at around 2.3%/year, a figure comparable to the existing average deposit interest rate after taking into account reduced inflation and taxation. The NZDPF money will be used to fund new productive development both public and private. NZPDF acts as a publicly owned Savings and Loan institution for the purposes of new productive investment.
- About NZ$ 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.
- 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).
- 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
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