SAR #8361

"...some are more equal than others." George Orwell

Bernie, M'boy: The US financial system, the housing, equity and Treasury markets, are all Ponzi schemes, with the need for a constantly increasing source of fresh money to keep going. That funding is based on new debt, new dollars based on nothing produced, just the trust and confidence of the participants. Please explain the difference between Madoff and Paulson & Bernanke.

Sentence Completion: Mexico gets 40% of its budget from oil exports. Mexico will stop exporting oil in about 4 years. After that Mexico will ___________ .

Quoted: What happens when California lays off a quarter million employees, sends them to bed without their suppers? When it closes the homeless shelters and the clinics? When Arnold cannot afford to call out crews during next year's fire season?

The Enigma: No one understands what's going on in the oil markets, don't feel lonely in your confusion. Countries lie about reserves, production and exports. No one really knows how much is used nor how much is in storage. Demand figures are windage-adjusted guesses at best. Maybe oil was not worth $147 a barrel, but it is certainly worth a whole lot more than $37 a barrel.

Falling for You... Conditions in the United States are expected to get much worse, with forecasts that the economy will shrink by as much as 6 percent in the fourth quarter and keep declining for the next six months.

Location, Location, Location: Exxon is paying $6 million to 'resolve' charges stemming from the spilling of 15,000 gallons of diesel into Boston Harbor. If they had paid $400 a gallon for the Prudhoe bay disaster...

Quoted: "I don't think anything from historic episodes suggests that, left to itself, the economy is going to magically recover and come back to full employment," Roger Farmer, National Bureau of Economic Research.

Down and Down We Go, In a Spin: China is sitting on $1.3 trillion in US Treasury & GSE bonds paying a measly 2.9%. They accumulated this fund underwriting the US purchase of Chinese goods. But the US customer isn't buying any more. To keep its economy afloat, China can inflate its currency or dump dollars. Inflation lead to Tiananmen Square in the 1980's and the leadership has not forgotten. If China begins to dump dollars just as Bernanke gins up the presses to buy another $1.5 trillion for Paulson's TARP and Obama's stimulus, deflation will not be a problem.

North, Sloped: Production from Alaska's North Slope declined 3.8% this year and is expected to drop 4.9% next, to 665,000 barrels a day.

Ground Floor: A Madoff victim has brought suit against the SEC for its ongoing 'negligent conduct." Who will be first to seek damages from the Office of Thrift Supervision for its active connivance in falsifying banks' books?

China Clipper: China's crude oil imports are expected to grow only 1.2% for 2008, down dramatically from last year's 14.7% growth on top of a 14.5% spurt in 2006. The industrial world runs on oil; if the Chinese use only increased 1.2%, expect their GDP to be down, down, down.

Small Differences: Some anticipate social unrest, protests, riots. But it takes widespread suffering to trigger much beyond polite protests in the USA. When unemployment reaches double digits, when hundreds of thousands have their heat shut off, when the electric grid fails and the water supplies stutter - then we'll see social unrest. For now I'm content to predict increasing unemployment, decreasing public services and rising concern about food, heat and water. Once we have hungry, poor, homeless, cold, unemployed people, will be lots of time to predict social unrest. Weeks even.

Last Minute Gifts: The Treasury Department gave stocking stuffers to 92 more banks, and anointed Amex and Citi banks so they could take a swig of the old eggnog, too, while GMAC got promoted to 'bank holding status.' What's the rush? Shoring up for end-of-year reports? Painting the pig?