Laws banning Alcohol and Drugs didn’t stop Alcohol Violence or Drug Violence

Posted by PITHOCRATES - January 31st, 2013

Politics 101

Prohibition Violence spilled onto the Streets where Gangsters shot up each other with Thompson Submachine Guns

Men have always drunk in this country.  A lot.  After the working day was over they went to their corner saloon.  And drank away their pay.  Getting inebriated.  And making a lot of bad decisions.  Such as drinking away their pay.  Getting into fights.  Engaging the services of prostitutes hanging out at the saloons.  Catching a venereal disease or two.  Taking them home to the wife.  Worse, some of these drunken men were beating their wives.

Alcohol violence was taking a toll on the American family.  In particular on the women in those American families.  This alcohol violence was creating a war on women.  These drunken men were beating their wives.  And inflicting them with venereal diseases.  Causing great harm to their wives.  And destroying their families.  They needed to do something.  And that something led to the temperance movement.  Which ended in Prohibition.  An outright ban on alcoholic beverages.

And it worked.  Alcohol violence on women committed by their husbands decreased.  As did the rate of venereal disease infections on married women.  As Prohibition shut down the local saloons.  And all the problems they caused.  But it didn’t stop everyone from drinking.  There was such a large demand despite Prohibition that others stepped in to meet that demand.  Organized crime.  Prohibition violence spilled onto the streets where gangsters shot up each other, and innocent bystanders, with Thompson submachine guns.  As the profitability of the illicit alcohol trade erupted in violent gang wars.  Allowing crime bosses like Al Capone to take over cities.  And corrupting their police forces.  Causing even more trouble than the original alcohol violence on married women.  So they repealed Prohibition.  And the people could drink once again.  As they always wanted to.

The Illicit Drug Trade picked up where Prohibition left off in terms of Gun Violence

The British were addicted to Chinese tea.  They couldn’t get enough of it.  Or other Chinese luxuries like silk and porcelain.  The only problem was that the Chinese didn’t want anything from Britain.  So as the Chinese goods flowed to Britain silver flowed from Britain to China to pay for their goods.  Causing a huge trade imbalance.  Which the British corrected with the opium grown in India.  And being that opium was addictive more and more Chinese were using opium.  Which reversed the net silver flow.  Allowing the British to enjoy their tea, silk and porcelain.  Which they traded Indian opium for.  Causing an addiction problem in China.  And a destruction of Chinese society.  That the Chinese responded to with the Opium Wars.

Drug addiction has destroyed many families.  And societies.  Throughout the world.  Which is why hard drugs like heroin and cocaine are illegal in most countries.  For they are very addictive.  Drug addicts lose their jobs.  Their wives.  Girlfriends.  And families.  As they sink into addiction without a job they often turn to crime to pay for their habit.  Become thieves.  Or prostitutes.  Where they often suffer abuse.  End up in jail.  Or catch AIDS from sharing needles with other intravenous drug users.  Cocaine use spread in more affluent circles.  While crack cocaine devastated poorer circles.  Which is why most of the world has criminalized these drugs.  Despite this demand remains high.  Cocaine use has fallen in the West.  But only because some users have switched to methamphetamine.  Which is cheaper.  More powerful.  And longer lasting.

Like with alcohol someone stepped in to meet this demand.  Organized crime.  And boy did they unleash drug violence onto the world.  From the street gangs shooting each other (and innocent bystanders) to control turf.  To the cartels higher up the distribution channels.  The illicit drug trade is big money.  Very big money.  Picking up where prohibition left off.  For it is the criminal element that truly benefits from banning anything.  The drug trade is so lucrative that it is now even funding al Qaeda.  Even though Islam strictly forbids the use of drugs.  But they have no problem taking a percent of the drug trade that flows from South America through Africa on its way to Europe.  Where it can destroy European societies.  Something al Qaeda has no problem with.

People already Breaking the Law will not be Stopped by another New Law

There is an epidemic of gun violence in the U.S.  Committed not by people who support and defend their Second Amendment right to own a gun.  For wanting to do that is not helped by shooting lots of innocent people.  In fact if one is prone to conspiracy theories one could say that the rise in gun violence is oddly coincidental to the Obama administration’s pursuit of gun control regulation.  Especially following Fast and Furious.  A program used by the Obama administration to try and stir up anti-gun sentiment.  Like that the current epidemic of gun violence is stirring up.  Which the conspiracy theorist could find a little too coincidental.   But I digress.

The people committing these acts of gun violence are some pretty disturbed people.  They have mental health issues.  Or are extremely angry about something.  Perhaps because they can’t get a job in the worst economic recovery in U.S. history.  Thanks to President Obama’s economic policies designed more for politics and social justice than actual job creation.  Who knows?  The only thing for certain is that this rise in gun violence corresponds with President Obama’s time in office.  For he didn’t campaign on the need for new gun control legislation.  But like his position on gay marriage he evolved to this position.  After witnessing a rise in gun violence during his time in office.

Whatever the cause is will new gun control legislation change anything?  Well, if we can learn anything from Prohibition and the War on Drugs, yes.  It will change things.  It will give organized crime another lucrative illicit trade.  But unlike alcohol and drugs their customers will not be people just trying to get a drink or a high.  It will be hardened criminals.  Who are shooting each other on the streets to defend their turf.  And at all levels of the illicit drug trade going right up to the cartels at the top.  So the criminals will have their guns.  And there will be new gang wars as criminal elements fight each other to control the gun trade.  Which may even increase the gun violence in places like Chicago.  Which is already one of the deadliest U.S. cities.  Despite having some of the most restrictive gun control laws in the nation.

So why do they have more gun deaths in Chicago than most cities?  Because there is a high demand for guns by the criminal element in Chicago.  Will a federal ban change that?  Will it put an end to gun violence?  Did it stop alcohol violence during Prohibition?  Does it stop drug violence now?  No.  A gun ban will not change what’s happening in Chicago.  For guns aren’t causing the gun deaths in Chicago.  It’s the people using the guns.  And people already breaking the law will not be stopped by another new law.

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Prevailing Winds, Channel Markers, Buoys, Portage, Canals, Locks, Niagara Falls and the Welland Canal

Posted by PITHOCRATES - January 30th, 2013

Technology 101

The Lateen-Rigged Sail allows Ships to Maneuver onto the Prevailing Winds Superhighways

Oceans are deep.  Allowing ships to cross them without fear of striking bottom.  Which helped the age of sail.  As sailors could use the prevailing winds to fill large masts of square-rigged sails to blow them across oceans.  Sailing to the New World with the trade winds (near the equator) and polar easterlies (near the poles) filling their sails.  And sailing from the New World with the westerlies (in the middle latitudes in both hemispheres) filling their sails.  The deep oceans let these sailing vessels move unrestricted to find the best wind.

That is, once these sailing vessels got to the proper latitude.  Getting there they had to use another kind of sail.  A lateen-rigged sail.  A triangular sail with a leading edge that cut into the wind.  Splitting the wind so part of it filled the sail.  The sail blew out and redirected the wind to the stern of the ship.  While the wind passing over the top of the curved sail created lift.  Like on an aircraft wing.  Pulling the ship forward.  This allows a wind blowing in from the side of a ship to propel it forward.  Which allows a sailing vessel to sail into the wind.  By sailing in a zigzag path.  Or beating.  After sailing in one direction they come about.  Or tack.  Turning the bow through the wind so it blows in from the other side of the ship.

The wide open and deep oceans let these sailing vessels maneuver at will to catch the wind.  Propelling them forward at speed.  Without fear of grounding out on the bottom.  Taking them to the great superhighways across the oceans.  To the trade winds and polar easterlies to sail west.  And to the westerlies to sail east.  Where these winds could fill multiple squared-rigged sails on a single mast.  On ships with multiple masts.  Allowing them to catch a lot of wind.  And to drive them forward to their destination.

Channel Markers and Buoys are Color-Coded telling Ship Captains ‘Red Right Returning’

Of course it’s these destinations that really matter.  For sailing around in the middle of the ocean is worthless unless you can load and unload cargo somewhere.  Getting to these ports was a little trickier.  Because it required sailing closer to land.  Where the ocean floor rises up quickly from great depths.  Making sailing near shores hazardous.  As hidden shoals and reefs hide just below the surface.  Threatening to cut a deep gash in a ship’s hull.  Or a ship could run aground in the shallows.  Where they may have to wait for a rising tide to free them.  All the while risking being damaged by any storm that blew in.

The first sailors who arrived in the New World had no navigational aids like we do today.  Often having to rely on the experience of a grizzled captain who could see and smell dangers in the water.  Or they dropped anchor away from the shore and explored the coast in smaller boats to sound out sea approaches to a deep-water harbor.  As time passed lighthouses dotted the shoreline.  And other navigational aids guided ship captains.  To warn them of dangerous waters.  And show safe channels to navigate.    Channel markers and buoys are color-coded.  With paint for day navigation.  And lights for night navigation.  In the New World (and Japan, South Korea and the Philippines) the colors are red and green.  When entering a harbor or river from the sea the red is kept on the right of a ship.  Mariners learn this with the memory device ‘red right returning’.

When the French sailed up the Saint Lawrence River they founded the oldest walled-city in North America.  Quebec City.  They then sailed as far upstream as they could.  Founding the city of Montreal.  Going beyond Montreal required portaging around the rapids at Montreal.  And a few others until they got to Lake Ontario.  Where they could re-embark ships and sail across Lake Ontario and into the Niagara River.  Where they had to portage around the rapids.  And Niagara Falls.  Where they once again could re-embark ships and enter Lake Erie.  Then sail up the Detroit River.  Across Lake St. Clair.  Up the St. Clair River.  And into Lake Huron.  Where they could sail through the Straits of Mackinac and into Lake Michigan.  Or up the St. Marys River.  Where they could portage around the rapids in the St. Marys River.  Reentering the river upstream of the rapids to let them sail into Lake Superior.  Where they could sail all the way to Minnesota.  And take on iron ore.  Mined from the great iron ore deposits beyond Lake Superior.  To feed the blast furnaces of America’s steel industry.

A Lock consists of a Chamber with Watertight Gates at each end and some Valves

Of course, iron ore is heavy.  As is a lot of the bulk freight shipping on the Great Lakes.  Making those portages around rapids and falls difficult and costly.  They needed to find a better way.  And they have.  Which is why Great Lakes freighters can travel from the western end of Lake Superior to the Saint Lawrence River.  And ocean-going freighters can enter the Saint Lawrence River and travel to the western end of Lake Superior.  Without a single portage.  Thanks to canals.  And locks.

A canal provides a passage around rapids or falls.  And locks in the canal can raise or lower a ship to the water level at either side of the rapids or falls.  Getting around the rapids between Montreal and Lake Ontario and in the St. Marys River didn’t require long canals.  Just enough to provide a passage around the rapids.  The Niagara River posed a bigger problem.  For there were both rapids.  And Niagara Falls.  As well as a great change in water levels.  The level in Lake Erie is 326.5 feet above the level in Lake Ontario.  As the typical lock doesn’t raise and lower water 326.5 feet one lock just wasn’t a solution.  So they used 8 (7 for raising and lowering ships and the 8th as a control lock).   And dug a canal across the Niagara peninsula.   The Welland Canal.  From Port Weller on Lake Ontario to Port Colborne on Lake Erie.  Interconnected by 26 miles of canal.  Allowing fully loaded bulk freighters to travel between Lakes Erie and Ontario.  And ocean-going freighters to travel from the Atlantic ocean (and the world beyond) to the western end of Lake Superior.

So how does a lock work?  Are there massive pumps to pump in water to raise a ship?  No.  There are no pumps.  Just a couple of valves.  A lock consists of a chamber with watertight gates at each end.  The gates swing open towards the upstream side.  When they close they form an 18-degree angle that points upstream.  So when the water level is higher on the upstream side the force of the water presses the gates closed and makes a watertight seal.  When the water level is equal on both sides of the gate they can easily open the gates.  When a ship enters a lock both gates seal.  If they are lowering a ship they open valves between the chamber and the canal on the downstream side.  The high water level inside the chamber drains until the water levels equalize.  If they are raising a ship they open valves between the chamber and the canal on the upstream side.  Water from the canal enters the chamber until the water levels equalize.  Then the appropriate gate opens and the ship goes on its way.  A very simple and low-tech process.  Allowing ships with deep drafts to travel the oceans.  Rivers.  And inland lakes.  Thanks to navigational aids.  Canals.  And locks.

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Trend Analysis GM and Toyota 2005—2008

Posted by PITHOCRATES - January 29th, 2013

History 101

GM’s Problems were caused by Franklin Delano Roosevelt and his Ceiling on Wages

The GM bailout is still controversial.  It was part of the 2012 campaign.  It was why we should reelect President Obama.  Because Osama bin Laden was dead.  And General Motors was alive.  But the bailout didn’t fix what was wrong with GM.  Why it went bankrupt in the first place.  The prevailing market price for cars was below their costs.  And what was driving their costs so high?  It was labor.  It was the UAW wage and benefit package that made it impossible for GM to sell a car profitably.

GM’s problems go back to Franklin Delano Roosevelt.  The country was suffering in the Great Depression with double-digit unemployment.  He wanted to get businesses to hire people.  To reduce unemployment.  And pull us out of the Great Depression.  So how do you get businesses to hire more people?  Hmmm, he thought.  Pay people less so businesses have more money to hire more people.  It was brilliant.  So FDR imposed a ceiling on wages.  Why did FDR do this?  Because he was from a rich family who didn’t understand business or basic economics.

Of course there was one major drawback to this.  How do you get the best talent to work for you if you can’t pay top dollar?  Normally the best talent can go to whoever pays the most.  But if everyone pays the same by law you might as well work at the place closest to your house.  Or across from the best bars.  No, if a business wanted the best workers they had to figure out how to get them to drive across town in rush hour traffic and sit in that traffic on the way home.  A real pain in the you-know-what.  So how to get workers to do that if you can’t pay them more?  You give them benefits.

Toyota doesn’t have the Legacy Costs that Bankrupted an Uncompetitive GM

And this was, is, the root of GM’s problems.  Those generous pension and health care benefits.  Things we once took care of ourselves.  Before our employers started providing these.  And the UAW really put the screws to GM.  Getting great pay, benefits and workplace rules.  For both active workers.  And retirees.  Even laid-off workers.  Such as the job bank.  Where GM paid workers who had no work to do.  It’s benefits like this that have bankrupted GM.  Especially the pensions and health care costs for retired workers.  Who outnumbered active workers.  Those people actually assembling the cars they sell.

It’s these legacy costs that have made GM uncompetitive.  Toyota, for example, didn’t suffer the FDR problem.  So their costs for retired workers don’t exceed their costs for active workers.  In fact let’s compare GM and Toyota for the four years just before GM’s government bailout (2005-2008).  We pulled financial numbers from their annual reports (see GM 2005 & 2006, GM 2007 & 2008, Toyota 2005 & 2006 and Toyota 2007 & 2008).  We’ve used some standard ratios and plotted some resulting trends.  Note that this is a crude analysis that provides a general overview of the information in their annual reports.  A proper analysis is far more involved and you should not construe that the following is an appropriate way to analyze financial statements.  We believe these results show general trends.  But we offer no investment advice or endorsements.

GM Toyota Current Ratio

We get the current ration by dividing current assets by current liabilities.  These are the assets/liabilities that will become cash or will have to be paid with cash within 12 months.  If this ratio is 1 it means current assets equals current liabilities.  Meaning that a business will have just enough cash to meet their cash needs in the next 12 months.  If the number is greater than 1 a business will have even a little extra cash.  If the number is less than 1 a business is in trouble.  As they won’t have the cash to meet their cash needs in the next 12 months.  Unless they borrow cash.  Toyota’s current ratio fell slightly during these 4 years but always remained above 1.  Falling as low as 1.01.  Whereas GM’s current ratio was never above 1 during these 4 years.  And only got worse after 2006.  Showing GM’s financial crash in 2008.

The GM Bailout did not address the Cause of their Bankruptcy—UAW Pensions and Health Care Benefits

There are two basic ways to finance a business.  With debt.  And equity.  Equity comes from outside investors (when a business issues new stock).  Or from profitable business operations.  Which typically accounts for the majority of equity.  Profitable business operations are the whole point of running a business.  And it’s what raises stock prices.  To see which is providing the financing of a business (debt or equity) we calculate the debt ratio.  We do this by dividing total liabilities by total assets.  If this number equals 1 then total assets equal total liabilities.  Meaning that 100% of a business’ assets are financed with debt.  And 0% with equity.  Lenders do not like seeing this.  And will be very reluctant to loan money to you if your business operations cannot generate enough profits to build up some equity.  And that was the problem GM had.  Their business operations could not generate any profits.  So GM had to keep borrowing.

GM Toyota Debt Ratio

GM went from bad to worse after 2005.  Their debt ratio went from 1.02 in 2006.  To 1.24 in 2007.  And to 1.94 in 2008.  Indicating massive borrowings to offset massive operating losses.   And how big were those losses?  They lost $17.806 billion in 2005.  $5.823 billion in 2006.  $4.309 billion in 2007.  And in the year of their crash (2008) they lost $21.284 billion.  Meanwhile Toyota kept their debt ratio fluctuating between 0.61 and 0.62.  Very respectable.  And where lenders like to see it.  As they will be more willing to loan money to a company that can generate almost half of their financing needs from profitable business operations.  So why can’t GM?  Because of those legacy costs.  Which increases their cost of sales.

GM Toyota Cost of Sales

GM’s cost of sales was close to 100% of automotive sales revenue these 4 years.  Even exceeding 100% in 2008.  And it’s this cost of sales that sent GM into bankruptcy.  Toyota’s was close to 80% through these 4 years.  Leaving about 20% of sales to pay their other costs.  Like selling, general and administrative (S,G&A).  Whereas GM was already losing money before they started paying these expenses.  Thanks to generous UAW pay and benefit packages.  The job bank.  And the even greater costs of pensions and health care for their retirees.  It’s not CEO compensation that bankrupted GM.  It was the UAW.  As CEO compensation comes out of S,G&A.  Which was less than 10% of sales in 2007 and 2008.  Which was even less than Toyota’s.

GM Toyota S G and A

GM’s costs kept rising.  But they couldn’t pass it on to the consumer.  For if they did the people would just buy a less expensive Toyota.  So GM kept building cars even though they couldn’t sell them competitively.  And sold them at steep discounts.  Just to make room for more new cars.  So the UAW could keep building cars.  Incurring massive losses.  Hoping they could make it up in volume.  But that volume never came.

GM Toyota Automotive Sales as percent of 2005

Toyota continued to increase sales revenue year after year.  But GM’s sales grew at a flatter rate.  Even falling in 2008.  It was just too much.  GM was such a train wreck that it would have required a massive reorganization in a bankruptcy.  Specifically dealing with the uncompetitive UAW labor.  Especially those pensions and health care benefits for retirees.  Which the government bailout did not address.  At all.  The white collar workforce lost their pensions.  But not the UAW.  In fact, the government bailout went to bolster those pension and health care plans.  So the underlying problems are still there.  And another bankruptcy is likely around the corner.

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Trend Analysis—Long-Term Debt-Paying Ability

Posted by PITHOCRATES - January 28th, 2013

Economics 101

To Help with the Decision Making Process Small Business Owners look at Past Results and Trends

A small business owner has a lot on his or her mind.  Most of which have something to do with cash.  If they will have enough for their short-term needs.  And their long-term needs.  Because if they don’t there’s a good chance he or she will be a small business owner no more.  So with every decision a small business owner makes he or she asks this question.  What will be the cash-impact of this decision?  Both short-term.  And long-term.

To help with this decision making process small business owners look at past results.  And the trend between accounting periods.  Either quarterly.  Or monthly.  For there is a lot more to a business’ health than net profit.  Or cash in the bank.  You can have neither and still be a healthy business.  And you can have both and be in a lot of danger.  Because these are only parts of the bigger picture.  It’s how they fit together with the other pieces that give small business owners useful information.  So let’s take a look at 4 quarters of fictitious data.  And what the data trends tell us.

Trend Analysis Long-Term Debt

Looking at these numbers you can arrive at different conclusions.  Sales were 1.7 million or higher for all 4 quarters.  That seems good.  But sales fell the last two quarters.  That seems bad.  But it’s hard to get a full grasp of what these numbers can tell us on their own.  But if we look at some ratios we can glean a lot more information.  And can graph these ratios and look at trends.

If the Debt Ratio is less than 1 it means the Business is Insolvent

If you divide current assets (Cash through Inventory) by current liabilities (Accounts Payable through Current Portion of L/T Debt) you get the current ratio.  A liquidity ratio.  Telling a small business owner his or her short-term (in the next 12 months) cash health.  If this ratio is greater than one than you have more current assets than current liabilities.  Meaning you should be able to meet your cash needs in the next 12 months.  Which is good.  If it’s less than 1 it means you may not be able to meet your cash needs in the next 12 months.  Which is bad.  But is there a ‘correct’ number for a small business?  No.  It could vary greatly depending on the nature of your business.  But the trend of the current ratio can provide valuable information.

Trend Analysis Long-Term Debt Current Ratio

This business became more liquid from Q1 to Q2.  Meaning they should have been able to meet their short-term cash needs even easier in Q2 than Q1.  A good thing.  But they became less liquid from Q2 to Q3.  With their current ratio falling below 1.  Meaning they may not have had enough cash to meet their short-term cash needs.  Their short-term cash position improved in Q4.  But it was still below one.  So the current ratio trend for these 4 quarters shows a cause for concern.  Is it a problem?  It depends on the big picture.  So let’s look at more parts that make up the big picture.

Plotted on the same graph is a long-term debt-paying ability ratio.  The debt ratio.  Which we get by dividing Total Assets by Total Liabilities.  If this number is less than 1 it means Total Assets are greater than Total Liabilities.  Which is good.  If it’s greater than 1 it means the business is insolvent.  Which is bad.  As insolvency leads to bankruptcy.  The trend from Q1 to Q2 was good.  Their debt ratio fell.  But it rose between Q2 and Q3.  Rising above 1.  Which is a great cause for concern.  It fell between Q3 and Q4 but it was still below one.  Is this a problem?  It’s starting to look like it is.

There is no such thing as a Sure Thing for a Small Business Owner

Are they going to have trouble servicing their debt?  There are ratios for this, too.  Such as the Times Interest Earned (TIE).  Which shows how many times your recurring earnings can pay your interest costs.  In this example we have normal interest expense such as that paid on the business line of credit.  And the capitalized interest such as the interest portion on a car payment.  We calculate TIE by dividing recurring earnings by total interest expenses.

Trend Analysis Long-Term Debt Times Interest Earned

In Q1 their recurring earnings had no trouble covering their interest expenses.  In Q2 recurring earnings grew as did their ability to pay their interest expenses.  But the trend following Q2 has been downward.  Either indicating a surge in debt.  And interest due on that debt.  Or a fall in recurring earnings.  In this case it was a fall in earnings.  Which plummeted following Q2.  Looking at another ratio we can see the extent of these poor earnings on their long-term debt-paying ability.  If we divide Total Liabilities by Owner’s Equity we get the debt to equity ratio.  If this number is 1 then the business is financed equally by debt and equity.  If it’s less than 1 more equity (typically produced by recurring earnings) than debt financed the business.  Which is preferable as equity financing doesn’t incur any costs or risk.  If it’s greater than 1 it means more debt than equity financed the business.  Which is not as preferable.  Because debt-financing incurs costs.  As in interest expense.  And risk.  The greater the debt the greater the interest.  And the greater risk that they may not be able to repay their debt.  Which could lead to bankruptcy.

Trend Analysis Long-Term Debt Debt to Equity Ratio

This business was highly leveraged in Q1.  With virtually all financing coming from debt.  Probably because the owner drew a lot of money out during some profitable years.  Something banks don’t like seeing.  They like to see the owner sharing the risk with the bank.  If they don’t it can be a problem if the business owner wants to borrow money.  Which this one did in Q3.  Because business was doing so well this owner wanted to expand the business by adding another piece of production equipment.  But being so highly leveraged the owner had to put up a sizeable down-payment to get a loan for this new piece of production equipment.  As can be seen by the $20,000 owner contribution in Q3.  There was also a large decline in Owner’s Equity in Q3.  Indicating a one-time charge or correction.  With the loan the owner increased production.  And was looking forward to making a lot of money.  Which was not to happen.  For the economy fell into recession in Q3.

Sales fell just as they increased production.  Which led to a swelling inventory of unsold goods.  Worse, the recession was hurting everyone.  As can be seen by the growth in accounts receivable.  Because people were paying them slower they were paying their suppliers slower.  As is evident by the growth in their accounts payable.  Then a piece of equipment broke down.  They had no choice but to replace it.  Requiring another equity infusion of $10,000.  While some write-downs of bad debt reduced Owner’s Equity further.  (Or something similar.  With such low recurring profits by the time you add in other one-time and non-recurring costs this can lead to a net loss.  And a decline in Owner’s Equity.)  Despite this $30,000 equity infusion into the business the debt to equity ratio soared between Q3 and Q4.  Showing how poorly recurring operations were able to generate cash after that expansion in Q3.  Which explains their insolvency.  And as leveraged as they are it is very unlikely that they are going to be able to borrow money to help with their pressing cash needs.  Meaning that the decision to expand in Q3 may very well lead to bankruptcy.

This is just an example of the myriad concerns a small business owner has to consider before making a decision.  And a successful small business owner always has to factor in the possibility of a recession.  It’s not for the faint of heart.  Being a small business owner.  For it’s a lot like gambling.  There is just no such thing as a sure thing.

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Quality suffers in the NHS as they continuously have Fewer People do More with Less

Posted by PITHOCRATES - January 27th, 2013

Week in Review

During the Summer Olympics in London last year the British showcased the National Health Service (NHS) during the opening ceremonies.  To show the world how great it is.  And how much the British people love their NHS.  For it is national health care at its best.  Well, the best that can be expected when your costs exceed your revenues.  And you have to ask fewer and fewer people to do more with less (see Police investigate hospital where dummy was taped to baby’s mouth by Sam Jones and agencies posted 1/27/2013 on the guardian).

A NHS trust criticised for its “appalling standards of care” has been forced to apologise after a baby boy was found with a dummy [i.e., a pacifier] taped to his face in one of its hospitals…

A separate, highly critical report by the Healthcare Commission in 2009 revealed a catalogue of failings at the trust and said “appalling standards” had put patients at risk.

In a three-year period from 2005 to 2008, the commission said, between 400 and 1,200 more people died than would have been expected.

In February 2010, an independent inquiry into events at the trust found it had “routinely neglected patients”.

A recent report, conducted by a team of independent experts on behalf of the regulator, Monitor, concluded that Mid Staffs was “financially and clinically unsustainable”.

It recently emerged the trust had paid out more than £1m in compensation to 120 victims of abuse or their families.

Not quite what they were portraying during the opening ceremonies.  Now there is more good in the NHS than there is stuff like this.  But what it shows is the dehumanizing nature of national health care.  Fewer people doing more with less.  Which means they have to ‘mass-produce’ health care.  Input as many people as possible into the system.  Process them as quickly as possible.  Then kick them out of the system.  And just as overworked people in factories complain about being overworked and underpaid, and quality suffers because of it, so is it, too, in hospitals.  Which leads to someone taping a pacifier to a baby’s mouth.  Appalling standards.  Routinely neglected patients.  And higher than expected death rates.

This is what happens when you nationalize health care.  And have an aging population.  The aging population shrinks the tax base which shrinks tax revenues that pay for health care.  While at the same time increasing health care costs to deal with that aging population.  Which leads to fewer people doing more with less.  And the problems they’re having in the NHS.  As we will have under Obamacare.  For Obamacare will be working with an aging population.  Where fewer people will have to do more with less.

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Britons protest yet another Hospital Closure in the Cash-Strapped NHS

Posted by PITHOCRATES - January 27th, 2013

Week in Review

The American Left celebrated the passage of Obamacare.  Even though it wasn’t really what they wanted.  Full blown national health care.  Like in Britain.  Where everyone has equal access to health care.  Though some may have to drive farther than others (see Lewisham Hospital: 15,000 march against closure plan posted 1/26/2013 on BBC News London).

At least 15,000 people have marched in protest against proposals to close services at a hospital in south London…

Under proposals, its A&E will close and the maternity unit be downgraded after neighbouring South London Healthcare NHS Trust ran up debts of £150m.

The government said “doing nothing is not an option” and is to make a decision on 1 February…

Lewisham’s A&E unit would then be downgraded to an urgent care centre, meaning emergency cases would be seen at nearby hospitals. The maternity unit at Lewisham could also be slimmed down, meaning complex cases would be dealt with elsewhere.

South London Healthcare NHS Trust, which runs three hospitals, was placed in administration last year when it started losing about £1.3m a week.

The problems it faces are not unique. Last year it was reported 20 trusts had declared themselves financially unsustainable in their current form.

So this is what we have to look forward to under Obamacare.  Hospital closings.  Longer drives to emergency rooms.  And complex births becoming more complex.  All because free health care is very, very costly.

The UK is losing millions at these NHS trusts (the bodies responsible for managing the hospital finances) because of their aging population.  People are having fewer babies these days than the generation in retirement.  So you have fewer people entering the workforce to replace those leaving the workforce.  So there are fewer people paying the health care costs.  While the number of seniors consuming those costs is growing.  And you just can’t raise tax rates high enough on a shrinking tax base to sustain this health care model.  So you have to cut costs.  And you do that by closing hospitals.  Or putting patients on the Liverpool Care Pathway for the Dying Patient.  A quasi death panel in the UK.  And whatever equivalent there will be under Obamacare.

This is what the American Left wants in America.  For America, too, has an aging population.  Though those on the left are sure they will be spared from what will most probably become horrible conditions in our hospitals for the rest of us.  For while they condemn us to equality of care where everyone receives equally substandard care they will enjoy a different kind of equality.  Where they are more equal than others.  And won’t have to suffer what the ordinary Britons are suffering through now.  Or what ordinary Americans will soon be suffering.

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Used Cars put a Crimp in Venezuela’s Inflationary Policies

Posted by PITHOCRATES - January 27th, 2013

Week in Review

The American Left attacks capitalism for being unfair and evil because it puts profits before people.  Whereas socialism puts people before profits.  Where people give according to ability and take according to need.  Fair, yes?  In the way it makes people want to link arms and sing Kumbaya.  Because everyone has everything they need.  Thanks to that redistribution of wealth.  And exactly how does that work?  Something like this.

An unemployed man with 8 children will get more from the government than a single woman with no children working 12-hour days 6 days a week.  She will have a lot of income the state can tax.  So she has a lot of ability.  While he will get a lot of state benefits.  Because he has a lot of need.  A smart person will look at this and quickly come to the understanding that working hard sucks.  While being a lay-about means you live comfortably on state benefits.  Paid for by people like that woman working 12-hour days 6 days a week.  So in true socialism it’s a contest to show as little ability and as much need as possible.

Sometimes there aren’t enough people to tax.  So to keep the people happy the state spends money it doesn’t have.  By printing more and more money.  Which is what Hugo Chavez did in Venezuela.  Actions which the American Left applaud.  As they applaud Hugo Chavez for putting people before profits.  For unabashedly embracing socialism.  And condemning capitalism.  So Venezuela should be a socialist utopia.  So is it?  Let’s take a look (see Venezuela Ready to Crack Down on Clunker Car Inflation Refuge by Corina Pons & Nathan Crooks posted 1/24/2013 on Bloomberg).

Automobiles purchased in Venezuela, South America’s largest oil exporter, typically gain in value the moment they are driven off the dealership lot. Facing 20.1 percent inflation and capital controls introduced in 2003 that limit the amount of bolivars citizens may take out of the country, Venezuelans invest in durable goods…

Venezuela’s consumer prices last month rose 3.5 percent, the fastest pace in 32 months, the central bank said Jan. 11. Venezuela has the third-highest inflation rate worldwide.

Chavez in 2012 ordered companies to cut prices of shampoo, soap and other personal care products to contain inflationary pressures…

Inflation rose after Chavez restricted dollar supplies in a bid to close a fiscal gap widened by spending before elections in October, in which he defeated challenger Henrique Capriles Radonski by more than 10 percentage points.

The lack of dollars has created shortages of goods that range from toilet paper to detergent and extend to automobiles. Suvinca, a Venezuelan state distributor of Chinese-made cars, posted a notice on its website yesterday that said it had run out of cars and suspended sales…

“The law won’t solve the problem, because it doesn’t resolve the fact that there is still little supply. It won’t reduce demand, either,” Garcia said. “A black market will be created very fast. Instead of solving the problem, it will make it worse…”

“With this law, it will not be permissible to sell a car above the maximum suggested price, and a used car can never cost more than a new one,” Amoroso said. “Notaries will be prohibited from legalizing any transaction that is above the suggested price.”

When you print a lot of money it just makes your money worthless.  Which is why governments frown on people using their computer printers to make money.  If everyone did this money would lose its value.  For it would be as common place as leaves on the ground in autumn.  In countries with high inflation rates people want to spend their money as fast as they get it before it loses too much of its purchasing power.  For the real goods they buy will hold their value.  So it’s a safer place to put your savings.  Instead of in a bank.

The more bolivars (the Venezuelan currency) they print the less each bolivar is worth.  The more they depreciate the bolivar the faster people want to convert them into something that will hold its value.  Like cars.  If the bolivar loses half of its value it will take twice as many of them to buy a car.  So if you own a car its value in bolivars will soar the more of them they print.  Not that people want bolivars.  But they do want dollars.  And getting dollars by selling real goods avoids the inflation problem of the bolivar.  But it also helps to undermine the currency as no one wants to use it.  Or accept it in exchange for valuable goods.

Of course an easy solution to this problem is simply implementing price controls.  If you legally prevent prices from rising in response to runaway inflation problem solved, yes?  No.  Because if prices are held at artificially low levels people will buy so many of these items while the buying is good that these things will disappear from store shelves.  And if the store shelves are empty it doesn’t matter what prices are.  This is why there were gas lines in the Seventies.  Gas sales were so strong that gas stations ran out of gas.  And with prices below real market prices there wasn’t new supply coming on market to meet that excessive demand.  Because having to sell below your costs doesn’t encourage anyone to sell.  Except on the black market.  Where black market prices adjust market supply to market demand.  And everything is available for a price.

This is the socialist utopia that is Venezuela.  Only it’s not a utopia.  It just converts as many people with ability into people with need.  And when there are no longer enough people to tax to provide for those in need societies break down.  And governments collapse.  Unless you have a strong police state.  Which has been the hallmark of all social utopias that put people before profits.  Places like Nazi Germany, the Soviet Union, the People’s Republic of China, North Korea, the communist countries of Eastern Europe, Cuba, etc.  Venezuela, too.

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The President and Hillary Clinton Lied and Four Americans Died in Benghazi

Posted by PITHOCRATES - January 27th, 2013

Week in Review

Hillary Clinton got indignant during her Benghazi testimony.  She shouted, “What different does it make?!?” when asked about one of the greatest foreign policy failures in U.S. history.  Why did the Obama administration mislead the American people just before a presidential election?  “What different does it make?!?”

Well, it makes a whole lot of difference.  Especially if politics were the driving factor for security considerations in Benghazi.  And with “al Qaeda is on the ropes” being a main campaign theme it would appear that politics were the driving factor for security considerations in Benghazi.  For a president claiming victory in the War on Terror could not have a resurgent al Qaeda in Libya.  Especially when al Qaeda was using the very weapons the Obama administration gave to the opposition to topple Muammar Gaddafi from power.  An opposition no one really knew then.  But we did know it had an al Qaeda element.  Who hated Muammar Gaddafi.  For he became a U.S. ally in the War on Terror following the U.S. invasion of Iraq.

So this is ‘what difference it makes’.  Political considerations led to a resurgent al Qaeda in Northern and Western Africa.  Greatly destabilizing the region.  Making the world a less safe place.  And to hide that fact until after the election the Obama administration seized onto that YouTube video that no one saw in Libya.  To cover up their foreign policy mess.  Benghazi is such a mess that everyone is now evacuating the city and leaving it to al Qaeda (see ‘Leave immediately’: Britons told to get out of Benghazi after threat from al-Qa’ida by Daniel Howden and Kim Sengupta posted 1/25/2013 on The Independent).

The Government has urged British nationals to leave Libya’s second city, Benghazi, in response to a “specific threat to Westerners” from terror groups operating in North Africa.

Defence sources confirmed the warning is linked to the activities of al-Qa’ida in the Islamic Maghreb (Aqim). An offshoot of Aqim was responsible for last week’s hostage crisis at the In Amenas gas plant in Algeria in which 37 Westerners were killed, along with 29 Islamists…

Dutch and German citizens have also been advised to join the exodus, while Egypt has restricted movement across its border with Libya due to security concerns.

Intelligence reports from Egypt as well as intercepted communications from Burkina Faso and Algeria led to the warning being issued. Western interests, rather than explicitly British ones, were said to be the terrorists’ intended target. Governments across North and West Africa have been on heightened alert following last week’s hostage crisis in the Sahara…

The city is the business hub of eastern Libya and was the birthplace of the uprising that toppled Colonel Gaddafi. However, since the dictator’s death it has also been used as a base by several jihadist groups including Ansar al-Sharia, which is seen as the new face of al-Qa’ida in the wake of the Arab Spring. It is believed that individuals from Ansar al-Sharia remain in the city while the group has withdrawn…

Violence in Benghazi has targeted foreigners as well as Libyan officials in recent months, with assassinations, bombings and other attacks. As well as the 11 September assault on the US consulate, an Italian diplomat’s car was fired on by militants earlier this month. Rome has suspended consular activities in the city and evacuated staff.

Britain’s ambassador to Libya, Sir Dominic Asquith, narrowly escaped injury last June when his convoy in Benghazi was hit by rocket-propelled grenades, reinforcing concerns that the city’s police and government militia may have been infiltrated.

This week Sir Kim Darroch, David Cameron’s national security adviser, held talks in Tripoli with Libya’s Prime Minister, Ali Zidan, in which security was top of the agenda. French citizens, including doctors working at Benghazi hospitals, have left the city and the French cultural centre has been closed over concerns of retaliatory attacks following France’s military intervention in Mali. A few Britons and a handful of German and Dutch citizens remain in Benghazi, many of them acting as security contractors or aid workers.

The anti-Western attacks started before al Qaeda killed the US ambassador in Benghazi.  So there was no question that al Qaeda was resurgent.  And four Americans paid the ultimate price when politics trumped security needs.

So what difference does it make?  It was the policies and politics that resulted in those four American deaths.  And the resurgence of al Qaeda in the region.  Because President Obama declared ‘mission accomplished’ during the presidential campaign.  Saying it was reason to give him four more years.  So if his ‘successful’ policies were reason enough to reelect the president then surely if those same policies were the cause of everything that went wrong in Benghazi they were reason enough NOT to reelect him.  And they knew it.  Hence the YouTube video.

The president didn’t win reelection by a large margin.  Had the truth about Benghazi been known chances are he would have lost reelection.  And this is why it makes a difference.  For it matters when a president chooses politics over American lives.

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The War on Coal to Fight Global Warming is actually Contributing to Global Warming

Posted by PITHOCRATES - January 27th, 2013

Week in Review

Al Gore became filthy stinking rich by scaring people about global warming.  He even won an Academy Award for his movie An Inconvenient Truth about how global warming was coming to kill us.  He and his fellow leftists throughout the world jumped onto the global warming bandwagon to do things they’ve always wanted to do.  Regulate and tax businesses to transfer as much wealth from the private sector to the public sector they controlled.  Giving them the power they so covet.

And they used that power to further regulate businesses and change the way we live our lives.  Launching wars on oil and coal.  And pouring billions of taxpayer money into green energy initiatives that they and their crony capitalist friends control.  All based on some data they gathered in the Nineties.  That they then put into their flawed climate models.  And laugh with all-knowing condescension at anyone who dares challenge them on the facts.  And belittles them.  Even punishing them where they can.  With further regulatory controls.  Legislation that favors their competition.  Or a brutal colonoscopy performed by the IRS or local and state tax authorities.  Just as a reminder of who has the power.  And who belongs to the privileged class.  The American nobility.  The new aristocracy.  Just like the old aristocracy.  The ruling class.  The federal government.

Well, it turns out they were wrong.  And the deniers had good cause to not believe in man-made global warming.  Because their models were flawed.  Based on temperatures from a natural warming period.  A warming caused not by man.  But by the planet (see Global warming less extreme than feared? by Bård Amundsen/Else Lie (translation: Darren McKellep/Carol B. Eckmann) posted 1/24/2013 on The Research Council of Norway).

Policymakers are attempting to contain global warming at less than 2°C. New estimates from a Norwegian project on climate calculations indicate this target may be more attainable than many experts have feared…

After Earth’s mean surface temperature climbed sharply through the 1990s, the increase has levelled off nearly completely at its 2000 level. Ocean warming also appears to have stabilised somewhat, despite the fact that CO2 emissions and other anthropogenic factors thought to contribute to global warming are still on the rise…

A number of factors affect the formation of climate development. The complexity of the climate system is further compounded by a phenomenon known as feedback mechanisms, i.e. how factors such as clouds, evaporation, snow and ice mutually affect one another.

Uncertainties about the overall results of feedback mechanisms make it very difficult to predict just how much of the rise in Earth’s mean surface temperature is due to manmade emissions. According to the Intergovernmental Panel on Climate Change (IPCC) the climate sensitivity to doubled atmospheric CO2 levels is probably between 2°C and 4.5°C, with the most probable being 3°C of warming.

In the Norwegian project, however, researchers have arrived at an estimate of 1.9°C as the most likely level of warming…

For their analysis, Professor Berntsen and his colleagues entered all the factors contributing to human-induced climate forcings since 1750 into their model. In addition, they entered fluctuations in climate caused by natural factors such as volcanic eruptions and solar activity. They also entered measurements of temperatures taken in the air, on ground, and in the oceans.

The researchers used a single climate model that repeated calculations millions of times in order to form a basis for statistical analysis. Highly advanced calculations based on Bayesian statistics were carried out by statisticians at the Norwegian Computing Center…

The figure of 1.9°C as a prediction of global warming from a doubling of atmospheric CO2 concentration is an average. When researchers instead calculate a probability interval of what will occur, including observations and data up to 2010, they determine with 90% probability that global warming from a doubling of CO2 concentration would lie between 1.2°C and 2.9°C.

This maximum of 2.9°C global warming is substantially lower than many previous calculations have estimated. Thus, when the researchers factor in the observations of temperature trends from 2000 to 2010, they significantly reduce the probability of our experiencing the most dramatic climate change forecast up to now.

Professor Berntsen explains the changed predictions:

“The Earth’s mean temperature rose sharply during the 1990s. This may have caused us to overestimate climate sensitivity.

“We are most likely witnessing natural fluctuations in the climate system – changes that can occur over several decades – and which are coming on top of a long-term warming. The natural changes resulted in a rapid global temperature rise in the 1990s, whereas the natural variations between 2000 and 2010 may have resulted in the levelling off we are observing now…”

The project’s researchers may have shed new light on another factor: the effects of sulphur-containing atmospheric particulates.

Burning coal is the main way that humans continue to add to the vast amounts of tiny sulphate particulates in the atmosphere. These particulates can act as condensation nuclei for cloud formation, cooling the climate indirectly by causing more cloud cover, scientists believe. According to this reasoning, if Europe, the US and potentially China reduce their particulate emissions in the coming years as planned, it should actually contribute to more global warming.

Some things to take away from this.  Climate is very complex.  And climate models require a boatload of assumptions.  Guesses.  Not even educated guesses.  But politically-driven guesses.  Also, they based their models on the temperatures in the Nineties being the new normal when the Nineties was in fact a natural warming period.  Where temperatures were temporarily above normal temperatures.  Volcanic eruptions and solar activity also influence climate.  And that sulfur actually causes global cooling.  Which is why volcanic activity causes global cooling.  Because volcanoes release sulfur particles into the atmosphere.  Just as burning coal does.  So the war on coal to fight global warming is actually contributing to global warming.

When you remove the politics from climate science you can arrive but at one solution.  Al Gore needs to return his Academy Award for An Inconvenient Truth.

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Two Years after the Ouster of Hosni Mubarak and the Egyptian People are still Protesting

Posted by PITHOCRATES - January 26th, 2013

Week in Review

Two years ago, during the Arab Spring, President Obama told President Hosni Mubarak he had to go.  The Egyptian people wanted democracy.  And Mubarak was in the way.  So the Mubarak government fell.  Even though he was an ally of the United States.  Which was rather odd for an American president to ask an American ally to step down from power.  Especially when the people standing in the wings to take over that power are enemies of the United States.  But President Obama did.  And he took credit for this.  Proud for his part in the Arab Spring.  And how did all of that work out?  Like most people thought it would (see Tear gas fired by police in Egypt posted 1/26/2013 on Sky News).

Police in the Egyptian city of Alexandria have fired tear gas at protesters, witnesses say, as nationwide rallies mark the second anniversary of the uprising that ousted Hosni Mubarak…

Tens of thousands took to the streets across the country to protest against Islamist President Mohamed Morsi, who is accused of failing to work for the goals of the revolution that ousted Mubarak and consolidating power in the hands of his powerful Muslim Brotherhood.

That’s right, Egypt went from being a U.S. ally to aligning with Hamas and Iran.  Enemies of the United States.  And enemies of Israel.  Greatly destabilizing the Mideast.  For what?  Even the Egyptian people are unhappy with the outcome.  At least the ones who want Democracy.  The Islamists, though, are quite happy with the Muslim Brotherhood in power.  And hope to see them take Egypt down the same road Iran took in 1979.  Where the Islamists rose up in power.  Rounded up the democratic protestors.  And turned the country into a theocracy.  Something that may happen in Egypt.  Thanks to an American president that told Hosni Mubarak he had to go.

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