Market moves in such a way as to render the assets of the biggest players worth less!

Some of my thoughts, opinions and beliefs on where we are heading to.

Last 200 years of Western economy were split into stages in the following order:

- Land owners' oligarchy.

- Industrial oligarchy based on manufacturing and natural resources.

- Service based economy.

The current cycle that has just ended, was characterized by:

- Explosion of credit and debt backed by property and service sector stock used as backing assets (mostly the non-manufacturing and non-resource sectors).

Next stage that has just begun is characterized by:

- Implosion of credit and debt.

Similar as in the previous cycles, this unwinding will have to result in the wipeout of the assets of the most privileged class - the banking and financial elite! They have resisted it and will resist by various measures, most likely by:

- Propping up the collateral by supporting property values thought mortgage insurance corporation bailouts and by supporting the service sector stock, probably through various covert "plunge protection" schemes.

- Enacting mutual guarantees and support schemes for the financial assets; see for example the recent US government guaranteeing liabilities of various corporations.

- Direct recapitalization of financial institutions by government. This requires maintaining (an illusion of) low bonds yields to facilitate the debt issue. Note that this process does not eliminate the financial "nuclear bomb in the basement"! It only moves it from one "basement" to another. Obama's bailout for Wall Street bankers belongs in this category.

- Maintaining the currency value to protect the real assets' value. Note that this requires a disciplined approach that permits issuing of bonds to cover new debt but prohibits expanding the monetary supply (i.e. it precludes government or central bank from buying back their own bonds or bills for cash).

The above measures are characterized by the desire to protect the assets of the Elite but they do not address the real cause - debt! The problem is that although the value of the assets declined and was often marked-down, the nominal contractual value of debt was not declining and generally cannot be easily marked-down to market. If - when the above measures fail and the assets continue to fall, the next steps will probably be an attempt at neutralizing the debt to stave off the mass corporate bankruptcies. It may happen in the following order:

- Shifting of remaining liquidity (by elites) into hard assets such precious metals, land, natural resources, some save heaven countries and others that I cannot yet think of.

- Devaluation of Western currencies.

- Controlled inflation implemented by governments and central banks through buying back bonds with newly printed cash.

- Uncontrolled inflation by governments having to print cash to cover their operating costs, pay for the inevitable gigantic emergency social welfare and debt servicing expenses.

I am concerned that the above depicted scenario may be aggravated by certain common corporate-cultural issues, such as:

- Rewarding top executives for accomplishing some short term accounting goals to the detriment of the long term strategic planning.

- Over-reliance on dumbed-down hierarchy of hired management with only business degrees.

- Lack of accomplishment-based rewarding practices and too much tolerance towards an inactivity among the management ("job for life" disease).

- Tendency to expel skilled people from the workplaces through the top-down negative selection ("fish rotting from the head" syndrome).

Recommended relevant readings:
1) "Atlas Shrugged", Ayn Rand
2) "Social Collapse Best Practices", Dmitry Orlov

oh and a must watch:

3) "Clark Winter's interview, Bloomberg 10/03/2009" (scroll to minute 4 and after)

- one might also consider this (watch the last scene):

4) "Fight Club"
(before you watch the film, make sure you have a good anti-virus and pest patrol, do not click anything else) Update - I disabled the link (unsafe!), instead it is better to get a torrent from mininova.org (search for "Fight Club" title) and then download the full movie with a BitTorrent. Good luck.