Thursday, August 25, 2011



We all know that when we spend $1.20 for each dollar of income, we are headed for financial trouble. Some of us even believe that cash from a loan is income. So to make up the twenty cent shortage, we borrow or make purchases using a credit card. And with this abundance of ignorance, we are happy.

Let’s go over some basic rules that highly trained financial folks like me look at to determine whether a person can pay his bills. Sometimes, what is laid out in the first paragraph simply goes over people’s heads.

If the dollar collapses, at least it can be used for decorative purposes

One of the first things I look for is to see if a person (or a business) has a current ratio equal to 2 : 1. In other words, to be able to pay one’s bills, one must have $2 of current assets for each $1 of current liabilities.

Current assets are cash, assets convertible to cash in 30 days, receivables and inventory. Current liabilities are short-term liabilities that are payable within a short period of time, like credit cards and portions of long-term liabilities that are due and payable in 30 days.

The more critical ratio is the quick or acid test ratio, which is the relationship of current assets minus inventory as it relates to current liabilities. If this ratio is less than 1 : 1, then the person or business is considered to be insolvent and cannot pay his bills. If that person approaches you for a loan, you will be giving such a loan at your own great peril because I can assure you that he won’t be able to pay you back.

If  we use this tool to determine financial stability, the Federal, State and County governments can be determined to be insolvent. If they were individuals, their credit rating would likely be below 400. The only thing they have going for them is their power to confiscate from the citizens using their taxing powers.

Standard and Poor did not downgrade the credit rating of the Federal Government because the politicians did not compromise, but did so because they did compromise.

Here’s what happened. It was already determined that the Federal government could not meet its obligations. Rather than get these ratios in line with responsible financial management, they raised the debt ceiling, meaning that they could borrow more, thereby increasing the current liabilities.

There was an agreement to cut future spending in exchange for the ability to borrow more and to spend more today. In other words, they opened up another credit card so that they can spend more today in exchange for the promise to cut future spending within the next ten years.

Not a responsible move. No Congress can dictate what future Congresses can or cannot spend. Each Congress has the Constitutional power to set its own budget.

Contrary to what politicians would like to have you believe, compromising was a bad thing.

Let us assume that one has a child who is 5 years old and that child is a borderline diabetic. It is one hour before dinner and there are five pieces of cake that the child wants to eat. The child whines and throws a tantrum.

In the interest of being deemed to be reasonable, the parent compromises and allows the child to have two pieces of the cake and the child happily stops whining. The child is overloaded with sugar and goes into shock. Not very  responsible on the part of both the child and the parent.

This is what our politicians did. One side announced that they planned to spend more in order to get our economy going and the other side compromised and allowed for the debt ceiling to be raised in exchange for FUTURE spending cuts. S & P rightfully deemed this to weaken the government’s ability to pay and lowered the credit rating.

Politicians, do what they do best and immediately began trashing S & P for lowering the rating.

Our economy is based upon monetarist economics, or Keynesian economics. It measures growth or productivity using phony money. The government hires and pays a person $100 to dig a ditch. The next day, that person is paid another $100 to fill in the ditch he dug the day before. The government then announces that productivity was $200, but in reality, nothing of value was created.

Raising more revenue by increasing the tax rates for the rich is one solution that those who advocate more spending offered. They consider  the individuals and corporations that make more than $250,000 a year are rich. If you are covered by a pension plan or have a 401 K plan, you are likely owners of these “rich” companies because you own these companies through your plan. A raise in tax rates would diminish your return on your investments.

You further end up paying more when you buy the products and services you consume because these businesses will have to raise their prices to pay the additional taxes. Companies that are profitable are left with fewer dollars and would be unable to expand or hire more employees. Unemployment will remain high or will go higher.

The dollar will erode further and those on fixed income like our Kupunas, will have to pay more for goods and services or do without. Those who feel entitled to government funds could riot. They’ll even trash those who drive luxury cars or live in expensive homes. What they’ve done in Europe is what could happen here.

Kupunas won’t be able to defend themselves and their property. Flash riots are hard to prepare for and to defend against.

Right now, there is no safe place to invest your money other than into hard assets. We need to wait and see what the markets are going to do when the investors come back into the market after Labor Day. More importantly, we need to see if we can get past September 11 safely and without a major terrorist attack. An attack will cause a market crash, putting further downward pressure on an already vulnerable dollar.

Saturday, August 13, 2011

Meet an outstanding person


I was at Saint Francis West Hospice a couple of weeks ago and a young lady came into the lobby with a patient in a wheelchair. She parked him about 5 feet from the piano and settled in to listen to my offerings for the remainder of my hour.

While they listened, she was massaging the patient, doing dance moves and singing along with the music. Both were, I guessed, to be Filipino, so I played whatever Filipino music I had with me that day. They danced to Ma Ala Ala Mokaya, Ikaw and a few more numbers. They were having so much fun that I wanted to stop playing and join them. The young lady’s personality was intoxicating.

Most of the patients in a hospice are admitted if they're expected to pass within six months. The majority actually pass within two weeks because they're in a state where they deteriorate quickly. Many can't laugh or even smile. If they tap their feet to the musical beat, we know they're enjoying themselves. So laughing and carrying on is something I've not seen in my 8+ years that I've entertained at hospices.

Julie Peralta, it turned out, was a volunteer and has been volunteering at St. Francis Hospice since this past April. She is a caregiver by trade and decided to volunteer to help with the elderly, sick or handicapped. She is hoping to be a volunteer at the Community Living Center at the Tripler Army Medical Center.

At St. Francis, she assists wherever there is a need for help. She provides companionship, assists the staff in personal care of the patients, feeding and taking the patients out for fresh air.

Julie was born and raised in the Philippines. She grew up in a farming village high in the mountains and earned a degree in Animal Science and in Agriculture. She was employed by the Philippine Government, working in farm communities helping with sick animals as well as introducing technologies to help the farmers to improve their crops.

Julie went through the Red Cross training program for nurse’s aids when she arrived in Hawaii with her then husband. She soon developed an allergy to latex while working in a nursing home and went back to the Philippines in 2000 because the allergies made her severely ill and she was unable to work. The fresh air at the village’s 7,000 foot elevation and the care her family gave her brought her back to good health.

She and her son came back to Hawaii and she has been working as a personal caregiver since 2005. Her son is in his fourth year at the University of Hawaii, majoring in electrical engineering. She beams with pride when talking about him.

Most of her work comes from referrals from those in the industry, the Child and Family Services and from a home health agency. She struggles to get by but is grateful that she is healthy and able to also give of herself to help others through her volunteering activities.

But life is not all work for Julie. She’s involved in ballroom dancing and is a member of the Hawaii Ballroom Dance Association. If she dances with the same gusto and enthusiasm that I’ve observed in her interaction with patients, she’s likely very good.

Our community is indeed lucky to have people like Julie giving so much of herself to her adopted community and country. She's certainly a jewel of a human being.