Article on Ratios Analysis

8/12/2019 Article on Ratios Analysis

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Ratiosfor Financial Statement Analysis

Liquidity Analysis Ratios

Current Ratio

Current Assets Current Ratio = ------------------------ Current Liabilities

QuickRatio

Quick Assets Quick Ratio = ---------------------- Current LiabilitiesQuick Assets = Current Assets - Inventories

Net Working Caital Ratio Net Working Caital Net Working Caital Ratio = -------------------------- !otal Assets

Net Working Caital = Current Assets - Current Liabilities

Profitability Analysis Ratios

Return on Assets "R#A$

Net IncomeReturn on Assets "R#A$ = ----------------------------------

Average !otal Assets

Average !otal Assets = "%eginning !otal Assets & 'n(ing !otal Assets$ ) *

Return on '+uity "R#'$Net Income

Return on '+uity "R#'$ = -------------------------------------------- Average Stock,ol(ers '+uity

Average Stock,ol(ers '+uity= "%eginning Stock,ol(ers '+uity & 'n(ing Stock,ol(ers '+uity$ ) *

Return on Common '+uity "R#C'$Net Income

Return on Common '+uity "R#C'$ = -------------------------------------------- Average Common Stock,ol(ers '+uity

Average Common Stock,ol(ers '+uity= "%eginning Common Stock,ol(ers '+uity & 'n(ing Common Stock,ol(ers '+uity$ ) *

.rofit /arginNet Income

.rofit /argin = -----------------

Sales

'arnings .er S,are "'.S$Net Income

'arnings .er S,are "'.S$ = --------------------------------------------- Number of Common S,ares #utstan(ing

Activity Analysis Ratios

Assets !urnover Ratio


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SalesAssets !urnover Ratio = ----------------------------

Average !otal Assets

Average !otal Assets = "%eginning !otal Assets & 'n(ing !otal Assets$ ) *

Accounts Receivable !urnover Ratio Sales

Accounts Receivable !urnover Ratio = ----------------------------------- Average Accounts Receivable

Average Accounts Receivable= "%eginning Accounts Receivable & 'n(ing Accounts Receivable$ ) *

Inventory !urnover RatioCost of 0oo(s Sol(

Inventory !urnover Ratio = --------------------------- Average Inventories

Average Inventories = "%eginning Inventories & 'n(ing Inventories$ ) *

Capital Structure Analysis Ratios

1ebt to '+uity Ratio !otal Liabilities1ebt to '+uity Ratio = ----------------------------------

!otal Stock,ol(ers '+uity

Interest Coverage Ratio Income %efore Interest an( Income !a2 '2enses

Interest Coverage Ratio = ------------------------------------------------------- Interest '2ense

Income %efore Interest an( Income !a2 '2enses

= Income %efore Income !a2es & Interest '2ense

Capital Market Analysis Ratios

.rice 'arnings ".'$ Ratio /arket .rice of Common Stock .er S,are .rice 'arnings ".'$ Ratio = ------------------------------------------------------ 'arnings .er S,are

/arket to %ook Ratio /arket .rice of Common Stock .er S,are

/arket to %ook Ratio = ------------------------------------------------------- %ook 3alue of '+uity .er Common S,are%ook 3alue of '+uity .er Common S,are= %ook 3alue of '+uity for Common Stock ) Number of Common S,ares

1ivi(en( 4iel( Annual 1ivi(en(s .er Common S,are

1ivi(en( 4iel( = ------------------------------------------------ /arket .rice of Common Stock .er S,are%ook 3alue of '+uity .er Common S,are= %ook 3alue of '+uity for Common Stock ) Number of Common S,ares

1ivi(en( .ayout Ratio Cas, 1ivi(en(s 1ivi(en( .ayout Ratio = -------------------- Net Income


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ROA = Profit Margin X Assets urnover Ratio

R#A = .rofit /argin 5 Assets !urnover Ratio Net Income Net Income Sales R#A = ------------------------ = -------------- 5 ------------------------ Average !otal Assets Sales Average !otal Assets

.rofit /argin = Net Income ) SalesAssets !urnover Ratio = Sales ) Averages !otal Assets

TO BEAT THE MARKET, BE IN

THE RIGHT SECTOR, PART 1

What stock market sector have you been in lately? The sectors that are beating the market or theones that are trailing behind? Being in the right sectors will make a significant difference in theperformance of your portfolio. However, finding the right sector can be a difficult proposition. Firstlets e!amine a couple of recent studies on sector rotation that help illuminate the opportunitiesand the problems for investors. "n a follow up article we will then provide some guidelines forinvestors and traders on how to use sector rotation to achieve better investing results.

Sector Rotation

#ector rotation is an investing concept that believes that investors can produce better returns ifthey ad$ust the makeup of their portfolios to reflect the stage of the business cycle and theeconomy. "n theory different sectors of the economy will perform better at different stages of theeconomic cycle. The %ational bureau of &conomic 'esearch (%B&') and especially #am #tovellchief investment strategist for #tandard * +oorshave been the leaders in helping to define thepotential of following the economic cycle and rotate investments among various sectors.

The %B&' is the organiation that tells us when we have had a recession, usually well after thefact. They perform in depth analysis of many economic factors the help determine the status ofthe economy. #am #tovell in one of his BusinessWeekcolumns titled -#ector Watch stated -The%ational Bureau of &conomic 'esearch sets dates for peaks and troughs in economic activities,based on its assessment of such factors as gross domestic product and employment growth.#ince /012, the 3.#. economy has e!perienced // recessions and /4 e!pansions (it5s now in our//th e!pansion). 6rowth periods have lasted an average of nearly five years (20 months, to bee!act), with the shortest being /7 months from 8uly, /094, to 8uly, /09/, and the longest at /74months from :arch, /00/, to :arch, 744/.

#tovell has published two books on the sector rotation titled #tandard * +oor5s 6uide to #ector"nvesting /002and#ector "nvesting, /00;. They provide a general idea of how the economy hasinfluenced investing and especially flow of investors money. While e!pensive these books offeran e!cellent review of the important concepts of sector rotation and how to use them to improveyour portfolios performance.
http://www.nber.org/http://www2.standardandpoors.com/portal/site/sp/en/us/page.home/home/0,0,0,0,0,0,0,0,0,0,0,0,0,0,0,0.htmlhttp://www.businessweek.com/investor/list/stovall_toc01.htmhttp://www.amazon.com/gp/product/0070617171?ie=UTF8&tag=tradingonline-20&linkCode=as2&camp=1789&creative=9325&creativeASIN=0070617171http://www.amazon.com/gp/product/0070617171?ie=UTF8&tag=tradingonline-20&linkCode=as2&camp=1789&creative=9325&creativeASIN=0070617171http://www.amazon.com/gp/product/0070522391?ie=UTF8&tag=tradingonline-20&linkCode=as2&camp=1789&creative=9325&creativeASIN=0070522391http://www.amazon.com/gp/product/0070522391?ie=UTF8&tag=tradingonline-20&linkCode=as2&camp=1789&creative=9325&creativeASIN=0070522391http://www.nber.org/http://www2.standardandpoors.com/portal/site/sp/en/us/page.home/home/0,0,0,0,0,0,0,0,0,0,0,0,0,0,0,0.htmlhttp://www.businessweek.com/investor/list/stovall_toc01.htmhttp://www.amazon.com/gp/product/0070617171?ie=UTF8&tag=tradingonline-20&linkCode=as2&camp=1789&creative=9325&creativeASIN=0070617171http://www.amazon.com/gp/product/0070617171?ie=UTF8&tag=tradingonline-20&linkCode=as2&camp=1789&creative=9325&creativeASIN=0070617171http://www.amazon.com/gp/product/0070522391?ie=UTF8&tag=tradingonline-20&linkCode=as2&camp=1789&creative=9325&creativeASIN=0070522391


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The table below is derived from #tovells book and describes the primary stages of the economyalong with key characteristics that help define the stage. "t provides some guidelines as to wherethe economy might be within the business cycle.

Stage:

Consumer E!ectations:In"ustria# Pro"uction:Interest Rates:

$ie#" Cur%e:

&u## Recession'eviving

Bottoming "nverted

3sing these stages the graph below, courtesy of #tockharts.com,shows these relationships andthe order the key sectors respond to the economic cycle. The #tock :arket ycle precedes the&conomic ycle as investors try to anticipate how the market will react to the changes to theeconomy.

Sector Rotation Mo"e#:

(egen"::arket ycle&conomic ycle

That seems pretty easy. +erform an analysis of the economy using the factors above and theninvest in the sectors that will perform the best in the future based on the sector rotation model. #owhere are we now,


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From an investment perspective, it is difficult to tell e!actly what stage of the economy you aree!periencing. #econdly, secular factors can overcome the normal cyclical pattern. #ound fiscaland monetary policy aimed at nonCinflationary growth, the final impacts of automation on costsand margins, the restructuring of business for greater efficiency, and the global economy havecreated a far higher level of gross domestic product growth than we have e!perienced beforewithout incurring substantial increases in inflation, interest rates, and risks of a bear market.These secular phenomena are important to understand if investors want to be able to takeadvantage of sector rotation to improve the performance of their portfolios.

Recent Stu"ies

Fortunately, there have been a couple of recent studies that might help us to get a betterunderstanding of how to use sector rotation more effectively.


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.HAT E/ACT($ IS IN&(ATION0Before getting started, This piece is my understanding of what inflation is, as taught by all thewriters from the various W&B sites. :y issue is with the standard e!planation. That e!planationbeing, too much money chasing too few goods, left me thinking. Huh?GG &ventually, after readingit from multiple sources, the idea finally sank in. nd " hope " got it right, certainly don5t want anenraged :ogambo at my door ready to take my head off, if this is wrong. This is the way " try toe!plain it to family and friends.

"n my humble opinion, another way to understand inflation, is from a basic picture conceptual

level. ook at it in terms of a glass of water. The first thing to establish is, what does the glassitself represent?

onsider thisI The glass represents $ust about anything and everything for sale. :ostly, this willbe $ust about anything you can touch, although " took the liberty of lumping services in as well. Tome everything is related in an inflationary sense. "t only matters to what degree a price will rise,whether its something you can touch, like a loaf of bread, car, wrench, toy, or even a service,such as a real estate appraiser. &verything is interrelated in some way. The point is, if you canbuy it, regardless of what it is, the glass will represent it.

(Some folks consider currency money, but thats not really true. There is a difference.

%ow place some water in the glass, and think of the water as currency. s a matter of fact, it $ustso happens that the amount of currency represented by water in the glass, is what is reDuired forthe purchase of all products and services at the moment. (products and services which isrepresented by the glass


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nd where did this currency come from? "t was created by the Federal 'eserve, courtesy of theirmoney creation mechanism. "t should represent a certain store of value. certain amount ofmoney is necessary for the purchase of goods and services. That would be a good thing. #o theFed is responsible for the creation of this currency that is used for the purchase of all productsand services. ( %es, I'm using money and currency intercangably. &ere really is a difference.)

The level of the water in the glass represents the price of goods and services. That part is realimportant to see. ll products and services cost something. Jou cant go into a store and get stufffor free. fter costs are established, a price is assigned to whatever stuff you want to purchase.

ll products and services have costs associated with them, and that, helps establish the price toyou. #o, the level of the water in the glass represents the price you pay for goods and services.

%ow, let us finally consider the role of the Federal 'eserve. The very nature of the Federal'eserve is to create inflation and manage inflation e!pectations. The Fed presents the illusionthey are fighting inflation, but their whole purpose in life is to inflate the money supply. TheFederal 'eserve will also try and present the illusion of a healthy economy. healthy economylooks like growth with steady costs and low unemployment. The Fed accomplishes this slight of

hand with deceipt and grossly manipulated statistics and inde!es. ((ample# )ews reports tatte ecomomy is strong and wages are up. *onsumers are confident, and inflation remainscontained.) ll of which is a huge fraud and cover to continually inflate the money supply. #o letus e!amine the effects of the Federal 'eserve adding liDuidity or more currency to the moneysupply, ergo inflation.


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The Fed adds liDuidity. But now look at the level of water in the glassGG The level has risenG Theprice has risenG The glass still represents all products and services that can be purchased withcurrency. The products and services did not increase. Theyre still the same products andservices, but more currency has been added into the money supply. #omething changed. Whatchanged is, -the price of products and services. They are now more e!pensive. But they are onlymore e!pensive, in terms of the currency you are using. "n this case, it would be the dollar.

The product or service is not really more e!pensive. The currency or dollar has been devaluedand is worth less. :ore currency is needed to buy the same thing, because every dollar in yourwallet is worth $ust a little bit less. This happens every time the Fed creates more currency. Theamount of products and services remain the same.

"f there is more currency in the economy, eventually, it has to work its way into pricing. ll pricesrise until the whole issue between products, services and total money supply, gets balanced out.

nd that is inflation from my very basic point of view.

#tefan

Free Business Book

Se! or craft your !ay to success"

able of Contents # $nde%

&y C'ristina S'errod

for CraftAnd(abricLinks)co*

1oes your 6ob satisfy your soul7 or 6ust your bankaccount - or er,as neit,er8 W,et,er your (esire isto se9 or craft or use anot,er talent7 you can besuccessful: Risky8 It can be7 but7 t,roug, business


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kno9le(ge7 you can re(uce t,e risks: Rea( t,is(ocument from start to finis,7 an( you 9ill be 9ellon your 9ay to fulfilling your (reams:

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!,e contents of t,is book are taken mainly from a (ocument I originally 9rote un(er ESectrumAccountingE7 a consulting business secialiing in small businesses: I set u t,e accounting system7olicies an( roce(ures7 an( taug,t t,e business o9ners an( managers ,o9 to successfully e2tractaccurate an( timely financial information in or(er to make soun( management (ecisions:
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I ,oe to accomlis, several t,ings 9it, t,is book: First7 I ,oe to take t,e mystery out of running asmall business an( s,o9 t,at contrary to 9,at you ,ave robably been tol(7 4# CAN 1# I!< %y usingt,is book as a gui(e7 you 9ill be able to set u an efficient business rig,t from t,e start: 1ont be foole(by larger7 fancy looking businesses: If you follo9 t,is book7 you 9ill be a,ea( of a great number oft,em: From ,ome businesses to fancy salons an( retail stores7 I ,ave seen t,e same errors: No one isabove t,e mistakes I 9ill teac, you ,o9 to avoi( in t,is book: %e ositive7 stay focuse(7 succee(:B #erational Areas)/anagement Resonsibilities

I(entify your areas of service or ro(uct tyes ,ere: W,o 9ill manage t,e (ifferent areas8 1o you ,avea artner8 .er,as one of you is resonsible for rocuring materials7 as 9ell as marketing an( sales7an( one is resonsible for making t,e items t,at 9ill be sol(7 or overseeing t,e making of t,e items:.er,as you 9ill run your o9n craft business7 but your souse 9ill take care of t,e books or comuter9ork:

>:* Skill Re+uirements

1o you ,ave t,e skills necessary to get t,e 6ob (one8 If your souse is going to (o t,e bookkeeing7(oes ,e or s,e kno9 ,o9 to (o t,is8 W,at skills are necessary for your business to be successful8 Ho9(o you lan to obtain any missing skills8

(inancial Plan- Resources ,eeded

:B Nee(s7 Sources an( Costs

'+uiment an( Facilities

Again7 make a list of e+uiment nee(e(: !,is time7 ,o9ever7 a(( t,e cost of eac, iece of e+uiment:W,at about facilities8 1o you nee( to rent sace8 Remember storage sace< List every iece ofe+uiment you 9ill nee( inclu(ing an office c,air for t,e comuter7 ens7 aer7 E%ookkeeing For1ummiesE book etc: !,is area can a(( u +uickly an( you nee( an accurate list of costs: If rentingsace7 (o you nee( a coffee mac,ine8 Cart for your coffee mac,ine8 4ou 9oul( be surrise( at ,o9muc, it can all cost by t,e time you finis, t,e list "t,is is 9,ere you mig,t (eci(e you (ont reallyEnee(E some t,ings


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!yical costs of over,ea( inclu(eK

a(vertisingsoft9arecomuter suliesmeals ; entertainment

office suliestele,one an( utilities(ues an( subscritionsrentostage an( freig,tinsurance

'mloyees may be art of over,ea( if t,ey are ai( a set fee as office ,el:

Working Caital

!,is is 9,ere most businesses run into trouble: 1o you ,ave enoug, fun(s to maintain your business8 Ifyour mont,ly costs of over,ea( come to B7*JJ er mont,7 (o you ,ave fun(s to cover t,is8 4ou mustbe able to accurately say t,at your rofit margin on your ro(ucts 9ill be at least t,is muc,: !,is(oesnt inclu(e an amount to be ai( to you "unless you inclu(e( a fee for yourself as art of your

Eover,ea(E$: W,at 9ill be your minimum amount ket in c,ecking8 It s,oul( be an amount toa(e+uately cover your basic "over,ea($ costs: #ver,ea( costs are costs t,at are not tie( to sales: !,eyare incurre( 9,et,er or not you ,ave sales7 suc, as rent "if you are 9orking at ,ome7 ,ig,er utilities9oul( robably only occur 9,ile you are manufacturing your ro(uct7 so utilities 9oul( not be over,ea(in t,at case - if you ,a( no sales7 you 9oul( not ,ave ,ig,er utility bills$: In t,e 9orl( of economics7over,ea( is calle( a fi2e( cost: It is Efi2e(E at a certain amount because you 9ill ,ave t,at same cost nomatter 9,at your sales are "remember t,at fi2e( costs are only fi2e( until a certain oint - if your salesreally boom7 you may nee( to rent a larger sace$:

W,en (o you lan to ay yourself8 Remember t,at all ayables must be consi(ere( first "i:e: remember9,at bills nee( to be ai( before aying yourself$:

:* !iming an( Source of Investment

'+uiment

4ou nee( a carefully lai( out lan t,at uses a time line for costs e2ecte(: Ho9 9ill t,e over,ea( becovere(8 W,at is t,e source of fun(s8 W,en 9ill various ieces of e+uiment be urc,ase( an( ,o9 9illt,ey be tie( to fun(s8 I al9ays gave my clients a Ecas, flo9E file I create( on '2cel: !,ey use( it on anon-going basis: %efore making any (ecisions effecting costs t,ey 9ere to lug t,e numbers into t,issrea(s,eet an( see ,o9 it laye( out over time: W,en a client calle( an( aske( 9,et,er ,e s,oul(,ire someone to ,el 9it, filing7 my first +uestion 9as7 EHo9 (oes it look on t,e srea(s,eetE8 It maylook fine for a 9,ile7 but ? mont,s out "maybe insurance is (ue t,en$7 ,e sees t,at ,e su((enly runsnegative: !,e s,ortage may be ? mont,s a9ay an( cas, flo9 srea(s,eets are less accurate t,e furt,erout t,ey go7 but t,is gives a goo( 9arning:

Facilities

Ho9 long can you stay in your current facility8 If you 9ork at ,ome7 ,o9 long can you (o t,at8 Will you

nee( a larger sace8 If so7 9,en8 Will increase( fun(s become available by t,at time8

In t,is section7 remember t,at you are not 6ust i(entifying costs: !,e key to t,is section is i(entifyingt,e timing of t,e costs to ensure t,at fun(ing 9ill be available:

(inancial Plan- Activity Pro5ections

!,is is t,e section t,at contains your c,arts an( gra,s an( financial statements7 9,ic, are base( on allof t,e rece(ing information:

Remember to kee t,e follo9ing rules in min( 9,en (eveloing your lan:


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B: A((ress all sections of t,e business lan: !,is 9ill oint out to you t,e areas in 9,ic, you really (ont,ave a clear enoug, i(ea on ,o9 to rocee(:

*: %e comlete7 but not overly secificG (ont create a nee( to constantly u(ate your lan:

: ee your lan confi(ential: !,is is your Ebusiness bibleE an( contains many of your most imortant

business secrets:

D: 4our business lan may be ,elful in obtaining financing:

?: Refer to your lan often: It 9ill ,el kee you on your lanne( at, "alt,oug, you may ,ave goo(reason for c,anging from your lan - in t,at case you mig,t nee( to u(ate your lan$:

C'apter B&usiness Planning ools

&y C'ristina S'errod

for CraftAnd(abricLinks)co*

Page


25/52

t,ere 9ill be any sort of cas, flo9 roblem: #n any given (ate on t,e srea(s,eet7 t,e time erio( uto t,at (ate is EactualE7 meaning it is a coy of 9,at is actually recor(e( in your c,eckbook: I u(ate(cas, flo9 9orks,eets for my clients 9eekly an( t,e balance on t,e (ate of t,e last u(ate is e+ual tot,e balance actually recor(e( in t,e c,ecking account: All information after t,at (ate 9as base( on myestimates: I inut all e2ecte( cas, intake an( e2en(itures: I usually ro6ecte( out several mont,s7alt,oug, you must kee in min( t,at t,e furt,er out you go7 t,e less accurate your ro6ection becomes:

!,is 9orks,eet is very ,elful in lanning uroses because you can inut your e2ecte( cas,e2en(itures an( see if t,ey make sense: If you see a negative c,ecking balance (eveloing any9,ere7you kno9 you 9ill nee( a loan or you 9ill nee( to make a(6ustments7 eit,er in e2en(itures or in t,e(ate of t,e e2en(itures:

%elo9 is an e2amle of a cas, flo9 srea(s,eet: Incoming cas, is liste( on t,e leftG e2en(itures are ont,e rig,t:

In t,e above e2amle7 I am re(icting t,e cas, intake for t,e mont, to be BJ7JJJ: !,at number isbase( on ast sales "9,ic, ,els me estimate cas, sales t,is mont,$7 ot,er money I e2ect to collectt,is mont,7 etc: 4ou 9ill get more accurate 9it, t,is art over time: N#!'K !,is is not the amount ofsales for the month7 but t,e amount you e2ect to collect in t,e mont,: !,is is 9,y t,is srea(s,eet isso imortant: It (oes not tell you 9,et,er your comany is making a rofitG instea( it tells you if you9ill ,ave a(e+uate fun(s: A comany can be making a rofit7 but still run out of money - a very ,ar(lesson to learnLoss State*ent7

!,is is t,e statement t,at tells you ,o9 muc, money you ,ave ma(e in a certain time erio(: It listst,e total income an( total e2ense F#R A .'RI#1 #F !I/' "for e2amle EFrom Manuary B t,roug,/arc, BstE$: Ho9 muc, money (i( you make (uring t,at time8

!,e follo9ing are t,ings t,at 9oul( be on an income statement:

sales revenueinterest income "from bank account$

!,ese are INC#/' items: #nly income is liste(: If you recieve( money from a loan7 it is not liste( ,ere:


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!,e follo9ing are also t,ings t,at 9oul( be on an income statement:

rent e2ensecost of goo(s sol( "if a ro(uce 9as reviously liste( in inventory an( you no9 sol( it$office sulies e2ense

!,ese are '5.'NS' items: !,ey are t,ings you ,ave urc,ase( for t,e business "you cannot inclu(e

ersonal e2enses$:

Accrual vs) Cas' &asis Accounting

"ash asis Accounting/any C.As start out small businesses on cas, basis accounting: !,at means t,at income is oste(9,en t,e money is recieve( an( t,e e2enses are oste( 9,en t,ey are ai(: For a very simlebusiness7 t,is is fine: In ot,er 9or(s7 if you collect t,e money 9,en t,e sale is ma(e7 an( you ay yourbills in a timely manner7 t,is s,oul( be sufficient for your business: It is easy an( you (ont ,ave totrack t,ings like accounts receivable an( money you o9e: Ho9ever7 as your business gro9s7 t,is 9illN#! be sufficient: At t,at time you 9ill nee( accrual accounting:

Accrual AccountingAccrual accounting osts t,e e2ense as soon as it is incurre(7 9,et,er it ,as been ai( for or not: Itosts t,e sales revenues as soon as t,e sale ,as been ma(e7 9,et,er t,e money ,as been collecte( or

not: W,y is t,is so imortant8 %ecause you can track your actual e2enses vs: sales to look for tren(s:4ou also track amounts (ue to you an( amounts you o9e: It is imortant to be able to revie9 businesstren(s: 1i( sales go u 9,en you took out t,at ne9 a(vertisement in t,e aer8

!,ink about t,is e2amle: Lets say you took out an a( in t,e ne9saer for your ne9 store: 1ue to asecial romotion7 t,e ne9saer allo9s you to ostone ayment for t,e a(vertisement for > mont,s:4our a( runs in 1ecember an( your cas, sales (ouble in 1ecember: Remember t,at you (o not ay foryour a( until Mune: n(er cas, basis accounting7 your 1ecember sales 9oul( be ,ig, an( a(vertisemente2ense 9oul( be ero "not recor(e( until Mune$: It 9oul( look as if a(vertising isnt 9orking: Wit,accrual accounting7 t,e a(vertising e2ense 9oul( ,ave been recor(e( in 1ecember7 even t,oug, it9as not yet ai(: A(vertising an( sales 9oul( bot, be ,ig, in 1ecember:

Furt,ermore7 9it, cas, accounting7 t,e (ebt o9e( is not recor(e(: Remember t,at an e2ense is notrecor(e( until it is ai(: 4our balance s,eet 9oul( not reflect t,e amount you o9e si2 mont,s from no9for t,e a(vertisement - not a very accurate statement< C.As love to start out small businesses on cas,basis7 as I state(: It is a +uick an( easy system: %'WAR'< It is N#! a goo( system: Wit, t,e soft9areavailable to(ay7 roer accrual bookkeeing is +uite easy:

0o to C'apter +ig'tfor an actual e2amle of bookkeeing: I 9ill take you t,roug, several mont,s ofbookkeeing for a small samle business: 4ou 9ill see actual osting an( ,o9 it effects t,e financialstatements:

C'apter G&ookkeeping Lesson

&y C'ristina S'errodfor CraftAnd(abricLinks)co*

Rea( C'apter F- (inancial State*entsbeforecontinuing 9it, t,is c,ater:

A teac,er once tol( my class t,at t,e only t,inginteresting about bookkeeing is t,at it containe( consecutive (ouble letters: Funny statement7 but notentirely true: %ookkeeing is muc, more interestingt,an t,at "Im not ki((ing$: It is a very cleversystem t,at allo9s a balance( met,o( of trackingt,e ,ealt, of a business: Wit,out financialstatements7 a business o9ner 9oul( +uickly lose
http://craftandfabriclinks.com/busfocus/business_book_8.htmlhttp://craftandfabriclinks.com/busfocus/business_book_7.htmlhttp://craftandfabriclinks.com/busfocus/business_book_8.htmlhttp://craftandfabriclinks.com/busfocus/business_book_7.html


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track of imortant information7 making it imossibleto make accurate management (ecisions:

.lease rea( our disclai*eran( er*sbeforerea(ing t,is book:

L'!S 1# S#/' AC!AL %##''.IN0

!ore n &ebits and "reditsI am going to take you t,roug, some actual mont,s: I 9ill list t,e event "sol( some ro(ucts7 ai( a billetc:$7 s,o9 you t,e actual osting "9,at is (ebite( an( 9,at is cre(ite($ an( s,o9 you t,e c,ange int,e financial statements: I am using accrual accounting:

First I nee( to e2lain more about (ebits an( cre(its: nfortunately7 t,is ten(s to be t,e confusing art:If you carefully t,ink about it t,oug,7 it makes sense: Remember t,at for every ost t,ere must be anoosite ost "for every (ebit t,ere is an e+ual cre(it$: 4ou ,ave t,e follo9ing to ost toK asset7liability7 income7 e2ense: !,e first t9o ,it t,e balance s,eetG t,e last t9o ,it t,e income statement:

Re*e*ber t'e follo!ing-(or t'e balance s'eetE debit is good and credit is bad)(or t'e inco*e state*ent debit is bad and credit is good)

Write t,at on a Ec,eat s,eetE an( kee it 9it, you: /emorie it:

#n t,e balance s,eet a (ebit 9illK raise your asset or lo9er your liability: W,y8 %ecause assets are(ebits an( liabilities are cre(its:

#n t,e income statement a (ebit 9illK raise your e2enses an( lo9er or income: W,y8 %ecause revenue"income$ is a cre(it an( e2enses are (ebits:

.er,as t,is (iagram 9ill ,el:
http://craftandfabriclinks.com/busfocus/business_book_1.htmlhttp://craftandfabriclinks.com/terms.htmlhttp://craftandfabriclinks.com/busfocus/business_book_1.htmlhttp://craftandfabriclinks.com/terms.html


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!,oroug,ly confuse(8 !,is is t,e one area t,at you must revie9 an( memorie on your o9n: !,e

income statement is a list of revenue "cre(it balances$ an( e2enses "(ebit balances$: If you (ebit ane2ense your e2ense 9ill go u: If you (ebit a revenue account7 your revenue goes (o9n "suc, as asales return$: If you cre(it an e2ense7 your e2ense goes (o9n "a refun( on rent$7 an( if you cre(ityour sales revenue7 revenue goes u: So7 for t,e income statement7 cre(its are goo( an( (ebits areba(:

For t,e balance s,eet7 assets are (ebit balances an( liabilities are cre(it balances: If you (ebit an asset7it goes u: Assets are goo(7 so t,is is a goo( t,ing: If you (ebit a liability account7 t,e liability balancegoes (o9n - again a goo( t,ing: If you cre(it an asset7 your asset is re(uce( "suc, as c,ecking balancefalls$: If you cre(it a liability account7 it goes u "you o9e more on a loan$: !,erefore7 on t,e balances,eet7 (ebits are goo( an( cre(its are ba(:

$ner-s quity: $ner &ra$s, %aid #n "apital and etained arnings

Im afrai( I must a(( one more confusing item: Small business o9ners are usually sole rorietors:

!,ey often ask me 9,at ,aens if t,ey take money out of t,e business "ay t,emselves$ or ut t,eiro9n ersonal fun(s into t,e business: Sole rorietors (o not take actual ayc,ecks from t,e business"c,eck 9it, your C.A to see if you s,oul( ,ave an actual ayc,eck or 6ust take (ra9s$: If you are avery small business an( (o not take ayc,ecks7 ,o9 (o you ay yourself8 Remember from c'apter


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out as a (ra9: So7 if you take out a (ra97 you 9ill (ebit t,e e+uity account: If you ut cas, into yourbusiness7 you 9ill cre(it t,e e+uity account "raise it$: In or(er for t,ings to balance7 t,e e+uity accountis like a liability account in t,at t,e balances are cre(its: Liabilities lus o9ners e+uity e+uals assets ont,e balance s,eet: !,at is 9,y cre(iting o9ners e+uity raises t,e account an( (ebiting lo9ers t,eaccount: 1ra9s are re(uctions in e+uity7 so t,at is t,e only account 9it, a negative balance:

EWaitE7 you say: W,y is o9ners e+uity a liability8 Isnt it a goo( t,ing8 It is a goo( t,ing for t,e o9ner7

but it is o9e( to t,e o9ner by t,e business so is liste( as a liability:

For t,ose of you 9,o love t,is stuff7 t,e Eretaine( earningsE is ma(e u of net income lus or minusamounts ut into or taken out of t,e business by t,e o9ner: Some accounting soft9are systems breakout t,e current years net income an( list t,at on a searate lineG t,e total of all ast years income ison its o9n line7 calle( Eretaine( earningsE: In t,e above e2amle7 t,is is t,e comanys first year ofbusiness: !otal o9ners e+uity is ma(e u of ai( in caital "9,at t,e o9ner ut into t,e business minus(ra9s taken out of t,e business$7 an( net income "retaine( earnings$: See ,o9 it all balances an(9orks toget,er8 .retty cool:

Sample ookkeeping

Mont' :)4ou 6ust starte( your business: 4ou take out a business loan from t,e bank for ?JJJ7 an(you ut your o9n ersonal fun(s into t,e business in t,e amount of ?7JJJ: 4ou oen a businessc,ecking account in t,e amount7 t,en7 of BJ7JJJ:

1ebit c,eckingK BJ7JJJCre(it %ank LoanK ?7JJJCre(it .ai( In CaitalK ?7JJJ

1o total (ebits e+ual total cre(its8 4esJ 9reat,s: 4ou e2ense( all oft,e cost of t,e sulies at t,e time of t,e urc,ase: 4ou ,ave sol( DD 9reat,s7 meaning you ,avesulies on ,an( still for B> 9reat,s: 4ou ,a( ai( >JJ for t,e sulies to make >J 9reat,s7 so t,ecost er 9reat, is BJ: 4ou must no9 make an a(6ustment for sulies still in inventory: !,e IRS(oesnt 9orry about small amounts of sulies in inventory7 but if it a((s u7 you must count it asinventory: !,is means you (ont count it as an e2ense: 4our C.A can give you a(vice on t,is: I ammoving t,e remaining sulies from e2ense to inventory to illustrate ,o9 it is (one: 4ou ,ave enoug,

sulies to make B> 9reat,s7 so you ,ave B>J in inventory "BJ 2 B>$: At t,is oint7 you coul( movet,e cost of your sulies use( from Efloral suliesE to ECost of 0oo(s Sol(E:

Sales Revenue1ebit cas, "asset$K B?JJCre(it revenue "income$K B?JJ

A(6ust for inventory "formerly e2ense($K *?J1ebit inventory "asset$K B>JCre(it floral sulies "e2ense$K B>J

/ake ayment on bank loanK1ebit bank loan (ue "liability$K *JJCre(it cas,K *JJ

.ost 1ra91ebit (ra9 "e+uity$K *JJJ1ebit ai( in caital "e+uity$K ?JJJCre(it cas,K JJJ

'ffect on financial statementsK


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!,e income statement is affecte( t,is mont, "you ,ave income an( an a(6ustment to e2enses$: 4ourbalance s,eet is effecte( "cas,7 t,e bank loan an( your (ra9 an( removal of ai( in caital$:

!,e balance s,eet is in balance because Assets = Liabilities an( #9ners '+uity: It reflects t,e year to(ate net income7 as 9ell as t,e current balance in your asset an( liablility accounts:

Do! can $ be s'o!ing a profit if $ 'ave no *oney;


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WAI!< !,is s,o9s you ma(e a net income of B7@?J for t,e year: 4et7 you (o not even ,ave enoug, int,e bank to ay off t,e bank loan: Ho9 can t,is be8 S,oul(nt you ,ave cas, in t,e bank to cover t,eloan7 lus 9,at you ma(e in rofit8 W,ere (i( t,e money go8 Is t,ere a mistake some9,ere8 No -t,ere is no error: 4es7 t,e business (i( make a rofit of B7@?J: W,ere is it8 4ou took out a (ra9 for*7JJJ7 remember8 .lus7 you ,ave some of it 9rae( u in inventory: It is ossible to s,o9 a rofit ont,e books7 yet ,ave no money in t,e bank: %e sure you un(erstan( t,is:

Remember7 also7 t,at in t,is e2amle "sole rorietor$7 t,e business o9ners income ta2 is base( on t,ebusiness rofit of B7@?J7 not t,e *7JJJ taken out as a (ra9: %e sure you un(erstan( t,at concet as9ell:

OI(, IN&(ATION, AN2 GO(2

February BD7 *JJJou see headlines like this all the time in the mainstream financial media C 'ising


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#o there5s action being taken to protect or defend against inflation. :erriamCWebster definesinflation as a continuing rise in the general price level usually attributed to an increase in thevolume of money and credit relative to available goods and services.

They seem to be infected with the same sort of thinking that dominates most of contemporaryeconomics C where the definition of inflation is actually the symptom of something else.

t least they5re honest about it.

s usual, Wikipedia has a much more thorough discussion of the sub$ect (after all, it is anencyclopedia and not a dictionary). But, encyclopedia sub$ects normally start with a definition,and here is where you first see a few wheels turning C a few Dualifiers right at the outset.

t Wikipedia, inflation is defined as followsI "n mainstream economics, inflation is a rise in thegeneral level of prices, as measured against some baseline of purchasing power.

distinction is made between mainstream economics and other economic theory and otherDualifiers e!ist in the general level of prices measured against a baseline of purchasing power.

s evidenced by the rest of the material on this page, the topic is much more comple! than:erriamCWebster lets on. The discussion includes eight different commonly used measures ofinflation, a discussion of hedonic ad$ustments, and what appear to be thousands more wordsincluding other theories.

The first topic in the inflation hedge>gold pricelogic breaks down.


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What if 24 percent of oil production were knocked offline and oil prices shoot through K/44 andthe consumer price inde! in the 3.#. rises to /4 percent?

Would people then feel a need for protection as the price of oil rises?

#imilarly, what if some low cost manufacturer from the other side of the world drives down the

cost of imported goods and keeps consumer prices far below where they would otherwise be?

Would people then feel that they need less protection or no protection?

much more sensible approach to the Duestion of what causes the gold price to move is tosimply look at money and credit and assess whether there is $ust too much of the stuff beingcreated.

The price of oil and its impact on consumer prices $ust confuses the issue.

Here5s a chart of reconstructed :E from the %ow and Futureswebsite to help out on the moneycreation part (the Federal 'eserve stopped publishing this data a year ago C they said it costs toomuch to maintain and provided too little helpful information. The black line, :Eb, is thereconstructed portion).
http://www.nowandfutures.com/key_stats.htmlhttp://www.nowandfutures.com/key_stats.htmlhttp://www.nowandfutures.com/key_stats.html


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%o one really knows how much credit has been created since the stock market bubble burstalmost seven years ago.

6old is probably going to go higher

INTEREST RATES MO3E STOCKSby Dans 9agner

Tradingnline!arkets.com

Mune **7 *JJ

"nvestors seeking to beat the marketshould be aware of the trends in interest rates. "n the last

couple of weeks we have seen longer term interest rates with the /4 year 3.#. Treasury %otebreaking through the 2A level. "n response to the most recent rise in interest rates, stock pricevolatility increased causing investors to become more cautious about the stocks in their portfolios.The Duestion is does this increase in interest rates signal a decline in the stock markets and inthe price of stocks? Before answering that Duestion, consider some background on interest rates.

.)o is in t)e 2ri%er4s Seat, Interest Rates or Stoc5 Prices

What affect does interest rates and bond prices have on stock markets and the prices of stocks?Basically, bond investors are more closely aligned with the economy as interest rates are a keydeterminant of economic performance. #tock investors must be aware of the economy but theyfocus on companies and their individual performance.

"nterest rates and especially changes in interest rates are a ma$or driver of the economy and thestock market. s investors we are very interested in the direction interest rates will go over thene!t ; months and year. 3nfortunately forecasting the direction interest rates will move is fraughtwith failure. Typically, for every forecast of increasing rates by economists there is anotherforecast of decreasing rates. #o what are investors to do?

Well, it turns out that interest rates are much more volatile that most investors realie. &d&asterling ofrestmont 'esearchfound out that in the past E2 years (with a 7Cmonth e!ception),there has not been a ;Cmonth period during which interest rates somewhere along the yield curvedid not change at least 24 basis points. :ore than half of the time, interest rates change by morethan /.2A (and over 72A in percentage terms) over all ;Cmonth periods. %ow that is somethingwe can use, so lets e!amine the current state of interest rates in a little more detail.

State o6 Interest Rates

Bill 6ross of +imco Bonds, the worlds largest bond management firm, stated in his most recentinvestment outlook that -With the possibility of creeping inflationary tendencies, especially inweak currency countries including the 3.#., combined with the potential reduction of financial flowsubsidies which to this point have favored fi!ed income vs. eDuity and real commodityinvestments, we come to the following range forecasts for the secular timeframe from 744@ to74//.
http://www.tradingonlinemarkets.com/http://www.crestmontresearch.com/http://www.crestmontresearch.com/http://www.pimco.com/TopNav/Home/Default.htmhttp://www.tradingonlinemarkets.com/http://www.crestmontresearch.com/http://www.pimco.com/TopNav/Home/Default.htm


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Source:+imco Bonds "nvestment 8une 744@

While not the only cause of the rise in the /4 year 3.#. Treasury rate, Bills comments are closelyfollowed. 'ising rates are further evidence that the Federal 'eserve will not be lowering rates inthe ne!t si! months.

The chart below shows the 71 year bull market in E4 year 3# treasury Bonds. This is the chart ofbond prices not interest rates. 'emember bond prices move in opposite direction to interest rates.

s indicated, it looks like this could be coming to an end. "f this happens then Bill 6rossscomments would be confirmed and we are much more likely entering a period of higher rates.
http://www.pimco.com/LeftNav/Featured+Market+Commentary/IO/2007/IO+May-June+2007.htmhttp://www.pimco.com/LeftNav/Featured+Market+Commentary/IO/2007/IO+May-June+2007.htmhttp://www.pimco.com/LeftNav/Featured+Market+Commentary/IO/2007/IO+May-June+2007.htm


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The chart below is of the /4 Jear 3# Treasury Jield. "t shows that rates are rising and testingresistance levels.


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The market looks ahead. #tocks rise when investors think the economyand corporate earnings will grow. When the Federal 'eserve increases rates, itis seeking to restrain the economy.

ompanies that borrow money pay more when interest rates go up. Thisreduces their earnings.

onsumers also pay more to borrow money, which discourages themfrom buying cars, houses and everything that goes with them. This hurtscompanies dependent on the consumer.

s a result stock investors need to become slightly more cautious keeping an eye on changes ininterest rates. "t does not mean that we should avoid stocks. "t $ust means we need to recogniethe impact higher rates will have on the 3.#. and global economy and corporate growth.ompanies that can fund growth with less debt should benefit.

IN&(ATION, IN&(ATION, IN&(ATIONby 4avid ,) ?aug'n

0ol( Letter7 Inc:Mune 7 *JJ

re you feeling sorry for gold lately? 5Fraid it doesnt need your sorrow with its present priceaction. s " have said before and will say again gold will do what gold wishes to do.

Heres a sub$ect that brings humor to the table. "nflation.

The humor is the fact that inflation is the huge elephant in the living room that everyone wants toignore and pretend its not there. Well, not e!actly. The middle class, lower class, the upper classand every class in between knows that prices are rising across the board.

8G2P u! at 9; annua# rate, 7orst since 9S9 econom' gre7 at t)e s#o7est !acein more t)an 6our 'ears?=

8On t)e in6#ation 6ront, t)e Commerce 2e!artment sa's t)e &e"era# Reser%e


47/52

the classes have been convinced that their home is an investment and that there fore a risinghome price means rising personal net worth.

+lus, the loan market added to the bubble by making cheap loans to all. Why not use cheapmoney to acDuire an asset that is -guaranteed to go up in value. How can you lose? ncon6ormit' Minera#iation, it egs t)e @uestion F.)ic) t'!e o6 minera#iation "oesPa#a"in 6ace in Ma#a7i an" Austra#ia0F He seeme" to e on#' concerne" aout Cigar (a5e9B'e no7,= (a7rence 29

WowG ets learn something new today. +egmatite :ineraliation and 3nconformity:ineraliation. " know you have stayed up late at night pondering the relevance and significanceof these terms. Well, your dreams of curiosity have been answered.

Ma#co#m Buc)o#t 8?an' !resentation 7)ere t)e to!ic o6 !resentation 7as >ranium Dt)ere 7as stan"ing room on#' an" 'ou cou#" )a%e )ear" a !in "ro! in t)e room9= 8?gra"eis o6 secon"ar' im!ortance 7)en e!#oring 6or >ranium9= 8O6 !rimar' im!ortance toin%estors is t)e >ranium geo#ogica# setting9= 8$ou see, in Nort) America, >raniumminera#iation occurs in + asic 6ormats D Pegmatite st'#e minera#iation an" >ncon6ormit'st'#e minera#iation9= C#ic5
http://www.bartleby.com/68/14/614.htmlhttp://en.wikipedia.org/wiki/Cosmic_inflationhttp://www.chinapost.com.tw/news/print/111150.htmhttp://www.321energy.com/editorials/bucholtz/bucholtz052507.htmlhttp://www.bartleby.com/68/14/614.htmlhttp://en.wikipedia.org/wiki/Cosmic_inflationhttp://www.chinapost.com.tw/news/print/111150.htmhttp://www.321energy.com/editorials/bucholtz/bucholtz052507.html


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%e!t name coming up below is analyst =oug asey. bright light should appear automatically inyour mind and click to -pay attention mode when =oug aseys name is referenced.

8Ne7s#etter 7riter 2oug Case' is 7e## a7are o6 geo#ogica# setting issues9 He recent#'ma"e a comment in t)e Bu## an" Bear ne7s!a!er to t)e e66ect t)at in%estors no7 s)ou#"e starting to 6ocus on t)ose com!anies t)at are e!#oring in areas a7a' 6rom t)ese

Basins9 An" I trust 'ou can see 7)' )e 7ou#" sa' t)is9 T)e cost o6 "ri##ing t)roug) t)et)ic5 #a'er o6 san"stone is 6ar 6rom c)ea!9= 8T)is 7ee5 I intro"uce t7o >raniume!#oration com!anies9 T7o are acti%e in t)e .'oming area an" 7i## use inDsitu #eac)ing9T)ree are acti%e in areas o6 Cana"a 7it) !egmatite st'#e minera#iation?= C#ic5

Below is a good email from a reader.

8Hi 2a%i", 8T)ose 7)o in%est in t)e stoc5 mar5et s)ou#" e 7orr'ing9 A6ter a##, t)e' aret)e ones c#iming t)e 7a## o6 7orr', not us9 .e are mere#' seeing a re6#ection o6 )o7 go#"is mo%ing re#ati%e to t)e "o##ar an" ot)er 7or#" mar5ets9 T)an5 'ou 6or !u##ing us t)roug)#ast summer4s correction 7it) 'our centere"ness on t)is issue an" 'our artic#es aoutc)eese9 Ho7 aout a nice ott#e o6 7ine un"er +0 T)is is m' o7n !ersona# @uest9 .)ent)e go#" mar5et gets t)e Jitters an" tries to s)a5e me out, I Just ignore t)e noise an" 6ocus

on somet)ing e#se 6or a7)i#e?= Best .is)es, Ton' P9 S9

nd how goes the growth related to the nuclear power industry? re those $uicy uranium stocksstill the place to be?

8Euro!e 7arms to nuc#ear energ'= 8Euro!e is !oise" to egin a ne7 nuc#ear age,re%ersing t7o "eca"es o6 !o#icies aime" at aan"oning nuc#ear !o7er as an energ'source?= FT)ere is a strong mo%e,F sa's Ian HoreD(ac' o6 t)e .or#" Nuc#ear Association,a (on"onDase" g#oa# nuc#ear in"ustr' grou!9 FPeo!#e are starting to sa',


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IN3ESTMENT &(ASH: IN3ESTMENT INSTOCKS P>RE SPEC>(ATION

by Paul 8) La*ont/ay *7 *JJ

#tocks are still following the elliptical curve upwards mentioned in our last "nvestment nalysis'eport. "n 74 of the last 7E days, the =8" has closed higher (which has never occurred in thehistory of the =8"). ccording to Bob +rechter -the most similar string of days ended in 8uly/070. "n his pril 744@ &lliot Wave Theorist, +rechter also discusses more recent historyI -"n/000, the public was heavily invested in mutual funds, and mutual funds had 0;A of their clientsmoney invested in stocks. (&d. %oteI We all know what followed from 7444C7447.) He continuesI-Today much of the public has switched to so called hedge funds (a misnomer). Bridgewaterestimates that the average hedge fund in 8anuary had 724A of its deposits invested. This monththe Wall #treet 8ournal reports funds with ratios as high as /E times. "ts easy to see how, as the&conomist reports, -margin debt is now at its highest level since the /074s. nd its not $ust instocks. Total credit market debt is over E44A according to the chart below from the 6abelli:athers Fund.

"ts a speculative credit bubble right from the history books. s real estate investors have recentlyfound out when credit disappears so do price gains. Hedge funds will also find that leverageworks $ust as well in reverse. :uch like investors who bought stocks at speculative tops in /070,/0;;, and 7444M inflationCad$usted value will not be recovered for at least 74 years.
http://www.ltadvisors.net/Info/DJIAForecast.htmhttp://www.ltadvisors.net/Info/DJIAForecast.htmhttp://www.ltadvisors.net/Info/DJIAForecast.htmhttp://www.ltadvisors.net/Info/DJIAForecast.htm


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IN&(ATION H>MAN NAT>RE

+...crabbling in te eart for a fres source of cas, te gold - silver minersof /t century urope proved tat te money supply never simply increases as if by magic...+

$O> MIGHT THINKBen Bernanke5s way with words mere cant, $ust so much sophistry learntfrom the :aestro.

But words matter when we5re talking about inflation N or denying it. hoosing the mot 0ustecanprove as crucial as selecting (or denying) the right data.

t the turn of the 74th century, for e!ample, a 6erman scholar, Wilhelm bel, noticed howmedieval chroniclers writing nearly seven centuries earlier had made a curious shift in theirchoice of words to describe rising grain prices.


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"nflation has risen not $ust in this country but in most of the ma$or countries, said his politicalpartner and rival, Tony Blair N the 3L prime minister N earlier this year.

"nflation rates have been pushed upwards across oilCimporting countries, noted 8osQ :anuel6onRleC+Rramo, an e!ecutive of the &uropean entral Bank (&B) at a seminar in Helsinki lastmonth.

How should central banks react? asked the &B man. nd what about the rest of us?

The same pattern that Hackett Fischer found in the :edieval +rice 'evolution of the /Eth centuryN a pattern of higher price levelsprecedinga determined attempt to increase the money supply Nwas also identified in the +rice 'evolutions of the /;th and then /9th centuries. #teadily risingprices for basic foodstuffs are recorded long before new sources of gold and silver were firsttapped.

The +rice 'evolution of the /;th century, says Hackett Fischer5s research, actually began asearly as /194 N many years before merican silver and gold arrived in &urope. "n &ngland and6ermany, prices nearly doubled during the half century before merican silver could have had asignificant effect on their economies.

Whatever the initial cause of rising prices N and Hackett Fischer cites population growth in all fourof the +rice 'evolutions he identified between the /Eth and 74th centuries N observing the ageCold response of human nature to higher prices reveals the true problem of modern centralbanking. For both the policy wonks themselves and for anyone trying to invest profitably undertheir fiat moneydominion, the natural response to rising prices is actually a search for freshsupplies of cash.


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ould it be N shhhhhh N that modern central banking is impotent in the face of a genuine andsustained rise in living costs? re the wonks undone by the rest of us N and most especially thecommercial banks N scrabbling in the dirt for fresh supplies of money to overcome the loss ofpurchasing power that higher prices produce?

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