Money and The Rats of NIHM

“When you see that trading is done, not by consent, but by compulsion; when you see that in order to produce, you need to obtain permission from men who produce nothing; when you see money flowing to those who deal, not in goods, but in favors; when you see that men get richer by graft 

and pull than by work, and your laws don’t protect you against them, but protect them against you; when you see corruption being rewarded and honesty becoming a self-sacrifice you may know that your society is doomed.”
– Ayn Rand

Last year I read aloud for my kids the children’s story: “The Rats of NIMH”.

It’s a story about a mother with an ailing son, who is forced to seek out help from a community of rats. She and her son are field mice. 

The rat community ‘evolved’ from a laboratory experiment designed to improve intelligence. It worked, the rats escaped, aware and fully conscious. 

They went on to build a complex society, though living off the farmer.

Ultimately, they are faced with the difficult decision to risk current comforts for a more sustainable life.

A life without taking from others, and living cooperatively instead of stealing from the humans.

The lesson is one of self reliance and it parallels the great financialization and wealth transfer humans are facing in the developed world.  

This comes collectively, through a persistent faith and worship of the status quo. And in particular, the fiat currency illusion imposed upon us by the barrel of a gun. 

Is it too late?  Can we find a new way like the rats? Do we have the courage to walk away. Or will we all be trapped and drowned – or exterminated?

Deflationary Reality

We have been experiencing deflationary pressures since the 1990s, punctuated by the Mexican Peso crisis, the savings and loan debacle, and finally the DotCom fiasco. 

Each resulted in one undprescendented bail out after the other. 

The monetary intervention and inflation that came in the aftermath was concealed in data management (CPI) or celebrated in the form of higher asset prices for housing and equities. 

As long as the voices of the disenfranchised (the elderly, the savor, and the poor) are kept out of the mainstream narrative, then it will go on.

Central banks around the world will continue expanding balance sheets on a massive scale. 

In response, the financial sector, from the top down, will continue to extend more credit and lending to less qualified borrowers which will again and again pull forward demand – making the economy appear stronger while gutting the future in the name of speculation and on the back of a growing number of citizen serfs.

Financial Weapons of Mass Destruction

Financial products (mostly derivatives) enable manipulation or the tail wagging the dog by distorting prices of the underlying assets or commodities.

Money (credit) creation has hit huge levels with the bailouts and QE since 2008.  Very little of that currency is finding its way into the hands of consumers.  Instead, levels of debt are increasing and financial institutions are holding more cash.

You know it’s a problem when even the “Counsel for Foreign Relations” is urging central banks to find a means of getting cash into the hands of consumers without creating more debt.

Minsky Moment

As long as our currency is created through fractional reserve banking, levels of debt will always exceed credit (cash) creation.

There comes a point when the levels of debt are too high. Also, when the demand for servicing that debt takes up most available credit and cash becomes relatively scarce (which should result deflationary pressures).  

That is the essence of our money system and why calling it anything less than a fraud is disingenuous.

We will soon see another crisis similar to 2008 and for a year or so, cash will be king. The only tool available to the financial authorities will be devaluation of the currency in order to make debt easier to service. They will need to create credit without adding to debt.

Deflation is a foregone conclusion when you have a monetary system based on unlimited fiat. Unlimited in finance simply does not equate with building real capital and wealth. 

Having said that, do not underestimate the resolve of the financial authorities to devalue their respective currencies to make debt servicing easier.

Governments will push for devaluation in order to protect export markets in parallel with the desperate attempt to save themselves. 

A deflationary collapse in asset values, followed by an almost instantaneous inflationary intervention in the form of stimulus and direct bidding of the prices of everything while the dollar loses vast purchasing power overnight.

Prices of essential needs (food, energy etc.) will start to climb, though much of the price increases will be a result of government-caused shortages rather than an inflating currency supply.

And these final interventions will be cheered and praised by the masses.

***

Ultimately, a small group of rats carefully planned and chose a moral path, one that didn’t rely on the fruits of another, but one based on collaboration and cooperation.

At first, I was surprised that some of the “Rats of NIMH” decided to leave the comfortable life behind. As long as the farmer provided, things might still work out.

In the end, some chose not to leave. And they did not survive.

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