War will last a long time. Assault Brigade medics advice to Ukrainians. Valentina, with the call sign Valkyrie, serving as a medical instructor in the evacuation unit of the Third Separate Assault Brigade of Ukraine, shared her thoughts on the war in an interview with Ramina Eschakzai, the medic rescue soldiers, while regularly conducting briefings and sharing updates from the front lines on social media. Valkyrie believes that the war will not end quickly. I want to say that everyone should study and self-improve, because indeed the war will last a long time and you must know how to react quickly in any situation. Recently, she took a vacation and saw civilian life in the rear. Quickly desiring to return and save the military again, Valkyrie noticed that some people in the rear seemed indifferent to the ongoing war in Ukraine. She emphasised that she doesn't condemn rest and entertainment as people need to work and earn a living. However, according to Valkyrie, when you come to Kyiv in uniform, people look at you like you're nothing. According to the medic, some individuals remember that the full-scale war that Russia unleashed against Ukraine almost two years ago is still ongoing only when another missile attack happens.


DuPont, maker of better things for better living through chemistry, presents the Cavalcade of America, starring Paul Muni. Tonight we have a story to tell you about a man who lived over a hundred years ago. He was a man who foresaw the need for free men to unite against the forces of tyranny and oppression abroad in the world. He envisioned the time when the peoples of the entire Western Hemisphere would have to stand linked in one powerful Pan-American Union to preserve their freedom. Together with the great South American liberators Miranda and San Martin, he brought the reality of liberty to the continent of South America. The name of that man was Simone Bolivar. Tonight he is portrayed on the Cavalcade of America by the distinguished American actor Paul Muni. It was an evening in the year 1830, a December evening. Mid-summer off the steamy, tropic coast of Columbia, a sailing vessel creeps in through the sea mist and anchors in the little harbor of Santa Marta.  Why are you landing here, sailors?  Don't you know these shows are quarantined, shipmaster? Take him back to the ship. This is a large land, soldier. You refuse me six feet of it. Get him back to the boat, sailors. We want no pestilence here. This freedom, a pestilence, soldier, is liberty a plague. Who are you? Shipmaster, who is this man? If I wore your uniform, I'd be ashamed not to recognize Simone Bolivar. Bolivar? It can't be. He exiled himself. True, but he was dying on shipboard, and we brought him here. Sire, forgive me. Shipmaster, give me a hand, shipmaster, sailor, soldiers!  Get him to a doctor! How is he now, doctor? His mind wanders in delirium, soldier. Oze, my sword, get me my sword. Out of the way, manuella. I'll die as I've lived, fighting. Sire, wake up, Sire. There's no enemy here. Oze! Oh, it's you, doctor. Only I am the soldier, Sire. I'll take these glasses, my general. Bring the medicine. Do I see the sun shining? I thought it was night. It will soon be dark, Sire. Yes, it will soon be dark. Sire, general Bolivar! What? You lift him back on the bed, soldiers. Help him, doctor. Do something for him. There's nothing to do now, except wait. His lips move as if he were speaking, trying to say something. If we could only hear, our nitty dreamer hears his own dream. I will sit here, soldier, and guard his silence. You don't hear them anymore, do you, Simon Bolivar? You have slipped into the darkness, Bolivar. Is this the way it comes? No voice, no vision.  Given account of yourself, Bolivar, there's not much time left. What of the thousands who followed you to their death? What will you tell them? That you, too, became a tyrant? Yes, you, Simon. You, Simoncito. How long since anyone, even a lover dared to call you by your Christian name, Simon Bolivar? It was in Spain, wasn't it? Another continent, another time. In the royal palace in Madrid. Rodriguez was there, too, wasn't he? Your tutor, Rodriguez. Radical apostle of freedom. Rodriguez. Simoncito, what is it? Aren't you enjoying the queen's reception? It's being given in your honor, you know. Honor? If I had any honor, I'd be home in Venezuela. Not here, among my people's enemies. Come, Simoncito, cheer up. Have you met the young countess?  Really? I've never seen a dancing cow. Ah, blast them all, Rodriguez. Blast their guilty, cringing souls. Simoncito, you know I feel as strongly about this as you do, but there is a time and place for everything. You will not secure liberty for our people by insulting the king's chamberlain. Now, come, let us have the old gentleman's feeling. Here he comes now, the old butcher. And look who's with him. Remember what I told you, but Rodriguez. Ah, Bolívar, just a moment. Excellency. May I present the young Marques de Bolívar. My family claims no titles, Excellency. As for me, I'm a Republican. So I've heard, senor. You see, as Grand Inquisito, it is my business to know what members of the important families in the colonies are thinking. Not only the important families judging from the amount of blood on your hand, Excellency. But... Ha! He looks at his hands to make sure. Isn't that a little dried blood under the nail there? You miss that when you wash them. Senor, you... Gracious, what a savage. Look, you're wearing Simoncito. He's rather a firebrand, I'm afraid. But don't take it too much to heart. He's young, yes. Yes, we're all young in Venezuela, young or dead. Dead at the hands of my Lord High Inquisito. Simoncito, I beg of you. There will be a scene. Aye, there will be a scene, Majesty, and thank God your innocent eyes will be spared that scene. We, Venezuelans, have grown accustomed to the sight of blood in the streets. My Lord and ladies, have you ever seen the plaza at Caracas? We see it every day. We see the bodies of innocent men and women quarreled and dragged through the streets of our capital. We see the heads of our countrymen hung up in little cages along the highways for the vultures to pick at and to put the fear of God into our people. Highborn ladies and gentlemen like yourselves, pass quickly by to avoid this stench. Really, Simoncito? I shall have to ask you to retire to your apartment. Aye, I deeply regret if I have offended your sensibilities. Senora, sire, my Lord and ladies, perhaps we may meet again in happier circumstances. I go to Rome now for a blessing from His Holiness. I shall need it where I am going. Well enough, and that is good, Simon, my lad. You freed yourself. But now what? Rousseau made a revolution with a quill. But our people in Venezuela do not even speak our language. Different tribes of them don't speak each other's language. The man does not need to know the word liberty to know when his chains have been broken away. Look down there, Simon, at that city. Rome. How many tyrants were overthrown down there? How many republics founded there on the rocks of human vanity? A month passed we saw the end of Rousseau's dream of liberty for France. The Bonaparte put a crown on his own head. In North America the revolution is still new. But remember, they once offered Washington a crown. But Washington refused it. Even so, a confederation of states bound only by mutual interest to a central government. How long can that endure without civil war? And will they have a Washington to lead them when that comes? There will be other leaders that times make the man Rodriguez, not the other way around. You yourself said so. Yet I tell you now, there is no revolution for South America except you yourself alone. Then I swear by this holy city. I swear by the God of my forefathers. I swear by my native land that I shall never allow my hands to be idle or my soul to rest until I've broken the shackles that bind us to our Spanish oppressors. And so the curtain falls on the first act of Boulevard the Liberator, starring Paul Muni and presented by Dupont, maker of better things for better living through chemistry. Reporting back to you. Rousseau, compadre, I embrace you.  They tried to harm enough in the hospital, sir. But a pigeon flew in the window and fell into the soup, so I didn't starve after all. Well, you see, our condition, my coat with a gold braid went to buy a chicken. Roup, whatever made you come all the way to Venezuela to fight for our cause, we're not fighting England, and you've no quarrel with the Spanish crown. Ask any Irishman, sir. All our ancestors were kings. So when anyone else puts a crown on his head, we often knock it off. I wish all our motives in this army was as simple as that, Roup. Ah, General Santander, I've been waiting for you. I bring you bad news, General Boliva. Your situation is growing desperate. And has it ever been otherwise? My dear friend, never has it been different since we undertook the revolution. But your country is in the hands of the enemy, Boliva. We have only a few troops, and there are 17,000 Spanish soldiers closing in on us. And that points the way to our strategy. Oh, we must avoid them. Carry the fight into your country, Santander. The Spaniards are not very strong in your Granada. We'll smash them through, by through. Then your people will rise up and join with us. We'll return to Venezuela and rout the enemy in full force. How can we march in the new Granada? The Spaniards hold the plane. Well, we'll go round them across the Andes. Climb 14,000 feet of sheer rock? You're mad, Boliva. Either we cross the Andes, or we're finished. Therefore, we cross the Andes. Boliva, you will be a victim of your own audacity. I've always believed that would happen.  I am that, sir. Boliva, if you persist in taking the advice of foreigners... General Santander, I remind you what our liberator says. That this is freedom's country. There are no foreigners here. Tell me, Santander, do you love me in your heart as you profess? Why do you ask that? Because I suddenly remember what happened the first time we met. I had been given a command of your troops. And when I gave the order to march, you refused. But I finally marched. Yeah, after I threatened to shoot you.  But I know it rankled. But, Santander, have you forgiven it? Yes. Thank you, my friend. Now I can embrace you, Santander. Believe me, we need each other. As our country needs us both. You don't refuse to march one more time, do you? I join you, Boliva, against my better judgment. Frankly, I do not believe you or any man can march an army over the Andes. A man's legs can carry him. From here onward, we must score. If a man dies here, it is a clean death. Falling from the very sky. Maybe that is what we've mentored along when we talked of liberty. But if there are any who hear it, let him turn back now. Too many. How does it happen, Rook? Yes, sir, I have flied. I told you, Rook, it could not be done. Boliva's ambition soars too high. He wants to achieve the impossible. Now he will be the death of us all. If there are his raids, impossible. But, crazily, it seems I believe that man can do anything. If he gets too steep, he'll put on wings and fly. I cannot oppose his will. I'm afraid if he ever dreams of power... Excuse me, sir. I'll be taking no talk behind his back. Through this night, Boliva. How many men have we lost? More than half. But this is the top, Santander. The highest plateau. If we keep them in alive till sunrise, we'll make it. They will freeze, I tell you, Boliva. There are a lot of them. And you are responsible for every life that's lost up here. That is one of the burdens of my command, Santander. Come. We'll get them huddled together and prove one man warming another. Like animals. The degradation of this campaign will go down in history, Boliva. I pray to God it will. In the sunlight. Where, sir? Away down the right there. See anything? I think with clouds. Look! Between those two clouds. Where the mist is rising. Where by the holy is glass. Green glass in the valley. Hey, lads, look! Ready to report, sir. Yes? Spaniards. 3,000 troops between here and Bogota. Sending two columns ahead to attack. We shan't wait to be attacked. Santander! Yes? Ten colonels are out to recruit among the surrounding countries. Bring in what mounts and food supplies they can. You are going to take the offensive with 1,200 men? As soon as we can remount our cavalry. We are in my country now, Boliva. Let us understand each other. If I risk my life in this fool's venture... People of new Granada will make you president by acclimation, Santander. That's what you wanted, wasn't it? Yes. Yes. That is what I wanted. Freedom is ours. The republics of this continent stand firm against the tyranny of the old world. And now I give you my guarantee. The people shall decree their fundamental laws. Not one man, not one party, nor one faction. Nothing but the will of the people is sovereign. That was the pinnacle, Boliva. You were very near the goal then. Then how was it that you who at twenty swore to free your people from oppression found yourself at forty-five ruling them with an iron grip? For at the last there was only one love you could be sure of, Boliva. Remember her? Manuela. And then that night in Bogota. That terrible night in the palace at Bogota. What are you looking at, Manuela? Why do you keep staring out of the window? I am watching them change the guard. There really ought to be more lanterns hung in the palace yard, dear. So dark I can hardly see. I never knew you would be nervous, dear. Such a strange city, Bogota. So ancient. And...and secret. Look at the lights. Glimmering clear to the sea. They're like all the mean little eyes. Watching. Watching till your back is turned. Let them watch, Manuela. See, I turn my back. Oh, I hit something there. Come, Manuela, my look is in my hands. And so are the rest of the conspirators. A mere signal from me would exterminate them all. But do you think I'd do it? They'd do it. Let them. I'm tired, Manuela. It's evil for any man to rule alone, Manuela. And evil for the people to obey him. I pity them both. Open the window wider. It's too dark to see. It looks like soldiers. No. It's a mob. Surely it can be. It is. Now they're lighting torches. Look, they're running toward the palace. Manuela, light the candle. Where's my sword? You can't find them.  You'll be killed. My sword, dear. Where's my sword? Get away from that door. The window, you can't find them out like this. But I will. Not at all, dear. Open that door. I'm going to fight.  Keep under the bridge, sire. I hear the mob coming. Cowering under a bridge. Up to my throat in water, sire. Let me go. Let me die as I've lived. Sire, I beg you, as you love God, stay with me. No! It's our soldiers. It's the veterans, sire. They're going to charge the mob. He's the verdict of the High Court. The leaders of the plot against you have been tried, Your Excellency, and sentenced to be shot. I commute the sentence to exile. And General Santander, Your Excellency? Did he plead guilty? No, Your Excellency, but it was not difficult for us to find him guilty. We have condemned him to be shot. I commute the sentence to exile. And I too condemn myself to exile. For I have weighed myself and found Bolivar wanting. There is no man in the world who is worthy to rule by his own will. No matter how pure his purpose, the dictator must always fail. Thank you, Paul Muni, for appearing again on the cavalcade of America and for your stirring portrayal of the great liberator, Simone Bolivar. And now we bring you Dupont's weekly story of chemistry at work in our world. Standing on your head right now is a column of air 30 miles tall, maybe 150. Air is mysterious stuff. 60 miles up and at the green search lights of the northern lights fade and flare on crisp nights. Some of this very program is waltzing and hopping around up there now on its way to you. Then a little lower, there's the stratosphere comparatively warm. Six miles above us, where the clouds stop, the air is thin and cold. Down around us, the air we breathe is thick and heavy. The heavy air we breathe is a mixture of gases, mostly nitrogen and oxygen with traces of argon, carbon dioxide, hydrogen, neon, and other gases including ozone, the one you smell after a lightning flash. To the chemist, air offers an inexhaustible supply of raw materials more than we can use in billions of years. The chemist uses air as one of the ingredients in making fertilizers, nylon, plastics, antifreeze compounds, any number of things that contribute to our comfort, happiness, and well-being. And there isn't any danger that we'll ever run out of air. If we used a million tons of it a year, we'd still have enough to last us for five billion years. At Bell, West Virginia, there's a DuPont plant that looks like a steel frame office building without walls. One of its chief raw materials comes into it through a pipe, plain air. Drawn into the plant, the air is blown through a bank of red-hot coke. The oxygen in it combines with the carbon of the coke and the bulk of the gas remaining is nitrogen. At night, the plant looks like a weird garden of orchids. Every few minutes with the regularity of old faithful, roaring guises of pale lavender gas shoot up from the great valves. But the flowers of burning gas are for poets. The chemist is interested in the gases themselves. He's interested in nitrogen because it fertilizes our fields. DuPont chemists use nitrogen to make nitrogen-bearing fertilizer compounds. The chemist is interested in nitrogen too because we're moving into an age of plastics and many plastics are nitrogen compounds. Gas is taken from the air glow in the sky signs of America at night. Other gases from air go into things as far apart as motorboat fuel and vat dyes. Superficial dyes that ran were used in dyeing textiles until quite recently. In modern vat dyeing, DuPont dyes that are virtually colorless in themselves flash into radiant beauty penetrating the innermost fibers of a fabric. When they react with oxygen, the chemist has taken from the air and concentrated in other chemicals used with the dyes. From the air over our heads, the chemist manufactures gases, liquids and solids. In the words of the DuPont pledge, better things for better living through chemistry. Next week, the Cavalcade of America comes to you from Radio City in Hollywood. Kay Francis will be our star in a radio play adapted from a best-selling novel Waters of the Wilderness by Shirley Seifert. A romantic story of frontier days. Of the lovely sister of the Spanish governor at the old trading post of St. Louis and the great American explorer George Rogers Clark. Our drama tonight was adapted for radio by Robert Tallman from an original play written by Dudley Nichols. The orchestra and the original musical score were under the direction of Don Burry. Before we close, we would like to express our appreciation to Radio Daily for the honor they have given the Cavalcade of America in the first annual Harper & Brothers Award for Outstanding Writing in the Radio Field. On the Cavalcade of America, your announcer is Clayton Collier sending best wishes from DuPont.


This is Mises Weekends with your host Jeff Dice. Ladies and gentlemen, welcome back once again to Mises Weekends. I'm very pleased to be joined by an actual Austrian this morning. This afternoon for him, Ronald Peter Stofferle, who works in Liechtenstein, but he's originally from Vienna and he's Austrian. And he is one of the four authors of a fantastic new book entitled Austrian School for Investors, Austrian Investing Between Inflation and Deflation. And this is really quite a remarkable book. It is not your typical investment book. It doesn't talk about particular stocks or bonds or movements in a particular segment or industry. This is more of a higher level overview of the Austrian school itself, of money and monetary policy, of business cycles, of some possible scenarios going forward, hyperinflation or deflation. So it can absolutely help you as an investor, but it's not going to give you a bunch of stock tips or something, a.k.a. James Kramer. So I really recommend this book. I read it over the weekend and it's written in a very plain and straightforward style. It's got some great blurbs on the back from Dr. Mark Faber from Guido Halsman, and I think it would make a great Christmas present. So with that said, Ronny Stofferle, thank you so much for joining us. Hi, Jeff. Thanks for inviting me. It's a pleasure being on the show. Well, I'm not only from Austria. I was born in Vienna, but also a keen follower of the Austrian School of Economics that is not taught at all in Austria anymore. So together with my co-authors, we try to bring back the Austrian school to Austria. And as it happens to be, I started investing when I was 14 years old. And since then, I'm kind of hooked by financial markets, anticipating the market, understanding the market, studied economics on the university, didn't learn too much at all, honestly, and then started in a bank as an equity analyst and started writing about gold 10 years ago and read a brilliant comment or quote by a gentleman called Ludwig von Mises. And then it said, as the Austrian economist Mises said, and I said, who's that guy Ludwig von Mises? Then I ordered, like, I think a dozen books on Amazon about the Austrian School of Economics, and that was it. So at some point I became the vegetarian in the butchery in the bank, talking about the gold standard, talking about the Austrian school, about the consequences of inflation. When you're sitting in a bank as an analyst, it doesn't make you the most loved person. And so I decided together with a couple of partners to set up my own company and create what we call Austrian investing. And as we're writing about gold for 10 years, where we're implementing our holistic view, it was also quite normal for us to actually write a book about Austrian investing. And we published it in German first. It was a huge success, really a bestseller in the German-speaking world. We got nominated for the German Book Price Award. And almost one year ago we published the English translation of the book, which is also quite a success so far. Well, let's talk about the subtitle Austrian investing between inflation and deflation, because one of the big knocks on Austrians is that we're so focused on the bust that we miss out on the boom. Can you comment on that? Totally. I think when you're an Austrian investor, there's plenty of opportunities, but also some risks and threats. And of course, if you've got this Austrian mindset, you've got knowledge about the monetary system. So you understand the interplay between inflation and deflation. The Austrian school is not very spread among investors. So you definitely have some sort of a contrarian edge. You understand interest rate and capital theory, which is extremely important stuff like the Kantillon effect these days. Very important also to kind of understand and forecast politics. So there's plenty of opportunities having this Austrian mindset, but there are also some threats because I think many in our camp are very, very sensitive when it comes to flaws in the capital structure. And this leads to some sort of a bearish bias, I would say. And this means that we often miss out investing accordingly in the boom phases, because everybody is waiting for the bust that will, of course, sooner or later happen. It also leads to very extreme portfolios. Many people that would adhere to the Austrian School of Economics invest mostly in gold, silver mining equities and so on. Within such a correction that we're seeing since 2011, of course, that means a huge drawdown to your portfolio. Austrians often become very, very convinced or dogmatic, which makes it not easier as an institutional asset manager like we are. And perhaps most importantly, the Austrian School doesn't make any forecasts. So followers of the Austrian School really were extremely successful in anticipating major moves in the market, but they have often been way too early. So I clearly want to show, and this is what we're also explaining in our book, that when you know the Austrian School, you're not necessarily going to be a successful investor. And I think that's a very, very humble observation. And this is one of the characteristics of the Austrian School that I really like. It's extremely, extremely humble. Well, that's interesting. I had a conversation a year or two ago with Bob Murphy, an economist here in the U.S., and he talked about how understanding economics is necessary to be a successful investor, but it's not sufficient. And I think that's a point you're making here. Let me get back to something you said about the investment world and their lack of understanding of monetary policy. It seems that most fund managers and most investment advisors, they're strictly focused on their return net of taxes and fees. They never seem to contemplate their returns net of inflation. Do you think this is true that they simply don't consider inflation and they don't really understand monetary policy? Absolutely. I mean, you know, most asset managers that are working nowadays, they haven't experienced any major inflation in their professional career. So everybody who has been around in the 1970s, stagflation of course has a different view when it comes to real returns. And I think that what we always emphasize is we're not in a cyclical crisis. We're in a systemic crisis. Crisis probably started in August 1971. Since then we've got a completely unbacked currency and we're seeing massive consequences of that since then. So I think that when it comes to inflation, that's probably one of the most important advantages that you have as an Austrian because monetarists, Keynesians, neocainsians, they don't care about our monetary system. For them it's just, it's basically a given. And we know that this Austrian worldview, it leads to systemic analysis and to the awareness that currency systems that just come and go and can morph into something new over time and that there will sooner or later be a monetary reform that our currency system will probably end up in hyperinflation or hyperdeflation. I think basically every fiat system did collapse because of hyperinflation and not of hyperdeflation. So I think that's a huge advantage that we're having, understanding monetary history. And I think a good economist shouldn't be an economist. He should be well-read in history, in philosophy, in natural sciences in many different areas and the more specialized people become, the less they see the big picture. And this was always a problem that I've had working in a bank. My colleagues, the Economist Department had extremely sophisticated models. The problem was that in regime changes like 2008, they simply didn't work and so, for me, the Austrian school gives you really a big advantage in understanding the big picture. Roddy, let's talk some more about this conundrum between inflation and deflation. Obviously, as Austrians, we understand inflation as a monetary phenomenon. So when the economy is bad, central banks attempt to resuscitate things by cranking up the printing presses figuratively and easing monetary policy generally. However, when the economy is bad, businesses, households, individuals tend to deleverage, they tend to shed debt and they tend to spend less, which is, of course, deflationary in its impact. So talk about this tension between inflation and deflation and how we should view this as Austrians and potentially as investors. Yeah, we coined the term monetary tectonics. We said that this interplay between inflation and deflation, this is like tectonic plates pushing against each other. Above the surface, everything might look stable, but below the surface, there's massive pressure coming. So from my point of view, there's quite a lot of deflationary forces. So basically, if there would be an Austrian laissez-faire approach, the crisis would be highly deflationary. So there would be balance sheet deleveraging. There would be a massive recession and from an Austrian point of view, recession is something normal, something healthy. There would, of course, be massive unemployment, but this would also lay the foundation for a more healthy and stable future. Now, the inflationary forces are basically by government and central banks. So zero interest rate policy, communications policy, quantitative easing, operation twist, currency wars, regulatory stuff and eligibility criteria for collateral and so on. So central bankers and politicians want to avoid deflation, whatever it takes. My friend, Jörg-Güter Hulsmann, said in the Ethics of Money Production, from my point of view, one of the best books ever written about those topics, he said, the harmful character of deflation is today one of the sacred dogmas of monetary policy. And the explanation by central bankers and economists is that in deflation, people just stop consuming. We all know that this is simply not true. We all know that within our monetary system, we just need a general increase in money supply. We need more and more credit growth. And since 2008, we're seeing that credit growth is actually pretty sluggish. Although in the last couple of months, we can see that credit growth in the U.S. was exploding. We've got an advisory board where Frank Shostak, also a contributor to Mises Daily, is a member of and his Austrian money supply is almost exploding in the last couple of weeks. So we are seeing very strong inflationary signs at the moment. And I think according to Rothbard, the first stage is monetary inflation. Then there is asset price inflation, which we had the last couple of years. And the next stage is actually consumer price inflation, what central bankers want to achieve, whatever it costs. So from our point of view, actually stack inflation, a bit like in the 1970s, might be a scenario that is highly likely going forward. Ronnie, there's a chapter in your book called the illusion of prosperity. And so we've been led to believe since 2008, of course, that equity markets were making gains. But I think your argument is that this is not built on any real increases in productivity or new markets or capital expenditures or real earnings, but it's just this sort of monetary alchemy that central banks have propped up equity prices. And that gives us the illusion of prosperity. And it creates what you call a halo effect around certain cheerleaders for the markets. But underneath there's no real prosperity. I think this is really a core Austrian criticism of both fiscal and monetary policy that we are creating a false economy, rather than allowing what you call a curative or restorative recession to occur and then building real economic growth on top of that. Absolutely. From my point of view, central banks are not the solution or the cure, they're the problem and they're extremely aggressive measures that they have taken in the last couple of years. They basically bought time. But we should not forget that simply by printing money, you cannot create any wealth. Real wealth can only be created by entrepreneurship, by appropriate risk taking, by capital accumulation. So at the moment, we're only distorting the economy's capital structure. And this creates this what we call property prosperity illusion. There is some nominal quantitative growth, but the dissolution of the economy's long-term foundation and increasing focus on the short-term and a declining quality consciousness can be observed nowadays. So we are consuming capital. And I think you can make the comparison with a beautiful house. I don't know how you probably have been to Vienna. There's beautiful buildings that were built in a time when the foundations of the Austrian School of Economics were laid by Karl Manger. Beautiful houses, but I think we're consuming capital at the moment. So everything on the surface looks still great, but it's like real estate that you don't invest in anymore. So in the first couple of years, it seems everything is fine. But then you can see that the property, the house, is just getting worse and worse and you're having leaks and it's just becoming a big disaster. So there's still so much capital to consume that it leads to this illusion that everything is fine and everything will get better. But once we arrive at the end of this, we'll see that the emperor has no clothes and that will probably be a time when people who are familiar with the Austrian School of Economics will have a huge advantage to people who think that everything is just fine based on their, I would say, mainstream views. Well, ladies and gentlemen, just consider that. Consider the possibility that there has been no real economic growth since the crash of 2008 or 2009. Or consider that we're just halfway right, that there's only been half as much growth, real organic growth as advertised since the 2008-2009 crash. That's a very sobering thought. Again, the book is Austrian School for Investors. We'll link to it. It was written by four authors, one of which has been our guest today, Ronald Peter Storferly, who comes to us live from Liechtenstein, but originally from Vienna. I think this book is going to make a great Christmas present for anyone you know who may be playing the stock or bond markets. It's really going to change the way you think about your money and investing. But again, as I mentioned earlier, this is not a book that discusses industries or sectors or particular investments. It's not that kind of investment book. It is much more a book about how to think about what governments and central banks are doing and what to do accordingly to protect yourself. So Ronnie, thanks so much for your time. Congratulations on a fantastic book. And we hope to talk to you very soon and have a happy New Year.


Hello, and welcome to the session in which we would look at consolidation of financial statements, specifically balance sheet elimination entry. And to be more specific, we're going to focus on the elimination of the investment in the subsidy area account, which is it's a lot to know. Also, we would look at how to create intangibles and talk about the measurement period. In the next session, after we after we create the intangible, we're going to look at impairing those intangibles. Now, as always, I'm going to mention this. This review session is designed specifically for CPA candidate. What does that mean? Why am I saying this? I'm saying this because I may not go over in depth as much as a typical advanced accounting students would need to. If you need to go more in depth about this topic, please go to my advanced accounting course where you will have where you will have more detailed explanation, more detailed explanation. So this session is a review, although I will explain the concept, but not as much as in depth. I would have done it if it's an advanced accounting course. If you need to, if you have access to my far hat lectures, you will have access to that plus additional exercises. Let's go ahead and get started. In a business combination accounted for using the acquisition, the acquirer, which is the parent company and the inquiry continue to exist as two separate legal entities. Simply put, we have a parent and we have a sub and each one of them will keep their books separately. Only the acquirer or the parent company prepare the consolidated financial statement. So when the parent company prepared the consolidated financial statement, they will include the parent plus the sub. And the combined financial statement would include 100% of the assets, 100% of the liabilities of both parent and the sub. After we process the elimination of intercompany transaction, which will work a separate session on this. Now bear in mind, if we are compiling, if we are buying the sub and we are combining the parent plus the sub, the sub, the sub equity will have to be gone. Why? Because we purchase the sub. If we purchase the sub, it means we purchase their equity. Let me show you what I mean. If when we buy an asset, not if, when we buy, when we buy a company, when we buy a company, we would look at their assets, we would look at their assets and assets equal to liabilities plus equity. Simply put, if we rearrange equity equal assets minus liabilities, asset minus liabilities equal equity. In business combination, we call equity net asset. So this is the same thing as net asset, which is assets minus liability. So what we do is we buy their net asset. Well, if we're buying their net assets, in other words, we're buying their equity. Therefore, we cannot buy their assets and keep their equity on the books. Therefore, the equity has to be gone. So you have to understand why we eliminate the equity, why we eliminate the equity, because we already purchase the company's assets and liabilities. And companies assets and liabilities would include their equity. So that's why the first thing, the equity will be gone. And I'm going to show you this entry maybe a couple times in this recording, but it's something that has to stick in your mind. Because when you're doing the consolidation, if they're asking you to do so, don't show any equity of the sub on the consolidated balance sheet. Now, so let's start. So what are the elimination entries? To eliminate the investment in the sub, you should always keep in mind the following. Because when we consolidate, we cannot keep the investment, because this investment, it's in the sub. Well, if we're adding the sub assets and liabilities, we cannot add the assets and liabilities and keep the investment, because the investment was paid for to buy those assets and liabilities. So the sub equity should be fully eliminated. So the first thing we have to do is eliminate their equity. What does that mean? It means common stock will have to be debited of the sub. Additional paid in capital will have to be debited. Retained earnings of the sub will have to be debited. And what do we do is we credit the investment. Because what we paid for the investment is to buy those trades. So when we consolidate, we remove the investment and we remove those three. The parent company investment in the sub should also be eliminated. I just showed you, we credit the investment. Whenever the acquisition is less than 100%, we have to add an NCI, NCI. We have to add an NCI to account for those minority or what we called non controlling interest share. And that will be a separate line in the consolidated financial statement. Now, sometimes what happened is we pay an access of the subsidiaries net asset over the book value. So what do we have to do? Well, if we pay exactly the book value, well, if we pay, let's assume a company is worth, we have a company, let's use some numbers here, their assets equal to 100, their liabilities equal to 40, the equity is 60. If we pay 60, that's easy. What's going to happen is we eliminate their assets and we for 60, we eliminate the investment for 60, all is good. Now, let's assume we have a company with with assets equal to 100 liabilities equal to 40, so they're not asset equal to 60. Now we went ahead and we paid, rather than 60, we paid $80. So we paid $80 and access of 60. It means we paid an additional $60. Well, I understand 60 is to pay their equity. What happened to the remaining $20 that we paid extra? Why did we pay extra? Well, many reasons why you would pay extra for the company. You like the company, maybe some of their assets are undervalued. They have a good potential. There are many reasons, endless reasons. So what do you have to do with this extra $20? Here's what you have to do. First, you have to adjust any asset, any tangible asset acquired over their book value. Maybe they have some assets, maybe have to have a piece of land on the books. It's worth $10, but the fair value equal to 12. You buy everything at fair value. In other words, this $20, $2 of it goes toward the land. We increase the land by $2. If we have other tangible asset that we can identify and they are they are undervalued, we report them, we increase this. Now, we still have $18 to go. Then once you adjust all the tangible assets, notice here the word tangible, it means assets that we can see like equipment, land, furniture, so on and so forth. Recognition of identifiable intangible asset at their fair value. Now, the company might have an intangible asset. Okay, it may be on the books or it may not be on the books. What does that mean? It means they might have an intangible asset that they created themselves because they created themselves. It doesn't show. You cannot record it on the books, but since you bought the company, now you would, you will identify it. You will, you would say you have this intangible asset. It's not on your books, but I, as the purchaser, I can now identify it because I bought it. I did not create it. Let's assume this intangible asset is worth, I don't know, $10. Now, of the 20, I gave two to the land or two to the tangible asset, 10 to the intangible asset, or I might have an intangible asset that's also undervalued regardless, whether it's undervalued or it does not exist. Well, I still have $10. Any remaining, which is $8, I paid above and beyond, tangibles and intangible assets, which is $8, this is going to be my goodwill. So, this is how I would allocate this. So, I paid $20 extra. I need to allocate this $20 extra. Let's assume there is no land, there is no intangible, then the whole $20 will be goodwill. Okay? If the balance was negative, the difference will be a negative goodwill and there's no such thing as negative goodwill, it's recorded as a gain. It's considered a bargain purchase. In other words, goodwill is computed as the access of the purchase price of the consideration paid over the fair value of the subsidiary's net asset. But first, we have to allocate that extra value to tangible and intangible asset if they exist. If not, everything is fair, everything is goodwill. So, let's take a look at the journal entry. What do we do when we eliminate the investment? We have to eliminate all the subs. This is all the sub equity. We have to debit sub equity, sub equity, sub equity, and credit the investment. And we credit the investment. Now, if we paid exactly $60, that will be the entry. If we paid $60 for this company, those in total will equal to $60. We credit the investment $60 and we're done. Assuming we also purchased 100%. If we did not pay 100%, well, we have to create the non-controlling interest if we did not pay 100% of the company. Then we create an uncontrolling interest. Now, let's assume we paid more. So, what do we do when we paid more? First, we debit any balance sheet account adjustment, like land, if we need to adjust the land, if we need to adjust the equipment account. Well, if that's not enough, we need to debit any intangibles, any intangible. Remember the $10, we debit any intangibles for the difference. Well, if we have anything remaining, we debit goodwill or we credit goodwill depending on whatever we have a negative balance or not, we assume we have a debit in goodwill. So, this is the elimination entry. Obviously, we're going to work an example with numbers, but I just wanted to show you from a theoretical perspective. Now, remember we have we debited intangibles. Now, we need to know a little bit more about intangibles because intangibles, they could be tricky. We have different type of intangibles. You have to know what to do with the intangibles. Identified intangibles are subject to impairment tests as follow. So, once we have an intangible, we have to determine, we have two types of intangibles. One and two. We have intangibles with finite life. What does that mean? Finite life means the intangible can serve the company for seven years or for eight years or for ten years. Those intangibles, because they have a finite life, a limited life, we amortize them over the useful life and we always test for impairment, which will see the testing for impairment in the next session. If the intangible will have an indefinite life, certain intangibles, once you purchase them, you could use them forever and they can benefit the company forever, they are not amortized. Well, why cannot be amortized? Because they have an indefinite life. To amortize something, you have to have a limited life for it. Limited life means you have to amortize it over a certain period of time. I'm telling you, this asset does not have a limited life, so you cannot amortize it, so it's subject to the two-step impairment test. Now, the other thing that you have to be aware of when you buy a company, that purchase, that company that you purchased might have R&D, research and development costs. Now, generally, not generally speaking, what do you need to know about research and development costs? When the company incurred research and development costs, research and development cost is expensed as incurred for the company. Now, what happens if you buy a company and they have in-process research and development cost? Now, they're not done with it, they're in process, but it's research and development and you purchase this company. Now, we're dealing about an acquisition, acquisition, in-process, in-process R&D. That is not written off immediately. So, what's going to happen is this, you're going to buy the company, they have something going on, maybe a cure for COVID, okay? Since we're talking about since COVID is a popular thing. So, they're doing R&D for COVID. What you do is this, you would recognize this in-process R&D first as intangible. You're going to say this is an intangible asset because possibly they're going to generate future economic benefit. Maybe that's why you bought the company. Therefore, you are buying an asset, could have a potential future benefit. You are paying for it. Now, you will wait.  Actually, it's already capitalized. You would amortize it. If the FDA said, guess what? Your cure for COVID is not a fly. It's going to fail. It's not acceptable.  Simply put, you will expense, which what you should have, what should have the company did, but since you bought the company. So, be careful if you are buying a company and they have R&D. First, you will treat it as an intangible asset and you will wait. If it succeeds, you amortize. You amortize that cost. You amortize that intangible. If not, you will write off. It's assuming that this intangible will have a limited life.  It's also important to know that goodwill created in an acquisition is not amortized. So, when you have a goodwill, that's not amortized. It's tested for impairment. Now, for the private companies, we'll see if it's for smaller companies, they can amortize it, but generally speaking, it's not amortized. Measurement period. Remember, when you buy the company, you're buying their assets and liabilities, when do you measure their assets and liabilities? When do you measure them? When do you find the fair value? Usually, in on the exam, in your classes, usually it's valued on January 1st when you buy the company, but that's not really, that's not what happened in the real world. On the acquisition date, the value of the asset and the liabilities acquired by the parent company are not always precisely determinable, so you cannot find everything that day. Therefore, these values may be re-measured during a specific period of time called the measurement period, but how long the measurement period? How long can you wait? Well, the measurement period should not extend beyond one year starting from the acquisition date, and they should any time the company has improved information about the value of the asset and the liabilities. So, you have one year. Now, if there's any adjustments, if there's any, there was changes in the adjustment, what do you change if the adjustment relate to events that occur after the acquisition date? They should not be included. Now, if it's after the acquisition date, this is new information. It has, you bought the company, you have to look at your value before the acquisition date. If there's any adjustments before, you will offset the value of goodwill or gains previously recorded. So, if you have any goodwill, you will adjust the value for that. The best way to illustrate this is to work an example. On February 2nd, year one company X announced its decision to acquire 90% of the common stock of company Y. 90% did not buy the whole thing. By issuance, 20,000 shares of its $15 par value common stock that's trading at 40. The acquisition took place March 15th, year two. Well, guess what? I don't care about what happened on the announcement date. I'm going to be looking at March 15th. When the fair value of company X stock was $45. Well, I paid $45, not $20. So, if I issued 20,000 shares times $45, it means I paid 900,000 for this company. In addition, company X incurred and paid in cash all the following cost. We paid legal cost of 75,000. Remember, legal cost is expense. We're going to expense legal cost. Stock issuance cost for 6,000 and registration fees for 48. What did we do with those stock issuance cost and registration fees? We are going to reduce additional paid in capital, which I showed you the details in the prior session. I will go over it briefly here. Moreover, company X agreed to pay $30,000 in company's Y-former shareholders on March 15th if the average net income over year three and four exceeds 275 under the 30% probability this could happen. This is, remember, this is called the contingent consideration 30,000 times 30%. In other words, we're going to have to add 9,000 to the investment. So, the investment in the subsidiaries is 909 and we're going to credit the contingent liability for contingent consideration 9,000. So, we accounted for the legal expense. We debited the investment. Now, we have to credit the common stock of the other company. So, we're going to credit common stock 300,000, cash we paid 179, cash we paid 179, and additional paid in capital is 496. Why additional paid in capital is 496? Here's why. When we issued the shares, the shares were issued at $45. Simply put, we debited investment 900,000. We credit common stock for 300,000. Why 300,000? 300,000 is the number of shares that we issued times the par value and anything remaining, anything remaining, which will be 600,000, should go to additional paid in capital. Now, why additional paid in capital is 496 is because we incurred 60,000 in issuing costs and 44 in registration costs, which is minus 104, which is going to give us the 496. I did this in the prior session. It's okay to do it again, but we created the investment. Let's add additional information to this example to make it more interesting and to illustrate the points that we're trying to make. On the acquisition date, the book value of Y company was $575,000. All right, that's fine. Book value equal to $575,000. While the fair value amounted to $710,000, the fair value of their assets amounted to $710,000. Well, if we find the difference between those two, it appears it's $135,000. Okay, so let me just use a calculator and if we take $710,000 minus $575,000 equal to $135,000. So that's the difference between their assets and their liabilities. Now, obviously they have to tell us if there's an explanation for this difference. The only difference between the two is that, and it retains, it tells us here, the only difference between the book value and the fair value relate to an equipment that has a remaining useful life of five years. So this $135,000 has to do with the equipment. That's fine. The equity section of the common stock, of the subsidiaries, common stock is $300,000, additional paid in capital is $200,000, and retained earning is $75,000. What do we need to do with those three balances? We need to debit them, get rid of them. In addition, company Y had an unpatentant technology, had a fair value of $175,000. So they told us now, they also have another asset, which is not on the books. It's not patented. It's not on the books because they created the intangible internally. They cannot record it, and they did not even they did not even register. It's not unpatented. But now since we bought the company, we can recognize this asset. Now, the fair value of the company amounted to $710,000, so we accounted for that. How much did we pay for the company? So what's the total fair value of the company? We paid for the company. We as investors paid for the company $909. We paid for the company $909. Remember, this $909 only represented 90% of the company. We did not buy the full company. We only paid $909 and we purchased it. We purchased 90%. By doing so, we can find out what is the total fair value of the company. Well, if we take $909 divided by $0.9, which we did this in the prior session, the fair value of the company is what we the fair value of the company is one fully for the company is $1,010,000. Okay, that's fine. So the fair value is $1,010,000. The book value is $575,000. Let's again find the total difference. The total difference. So $1,010,000 minus $575,000. What is the total difference between the two? Okay, so let's do this. Minus $575,000. That's equal to $435,000. $435,000. We know from the $435,000, you already know the reason the reason it's valued for more because there's a piece of equipment that's worth $135,000. If we take $435,000 minus $135,000, that's going to keep us with $300,000 difference because we allocated of the $435,000. We know $135,000 goes to the piece of equipment. We already also know that we have a piece, we have not piece, we have an unpatented technology that's worth $175,000. Again, we're going to allocate $175,000 minus, let me change this in a different color, minus $175,000 to that unpatented technology. Well again, if I allocated $125,000 to the unpatented technology, I have $125,000 to allocate. Well, I don't see anything else. I'm not told anything else. Well, if I'm not told anything else, the remaining $125,000 must be good. Well, so notice how we did this. We went from the total fair value. What's the total fair value of the company? Well, we did not pay 100%. We have to find 100% of the fair value, which is what we paid divided by 90%. We'll give us the total fair value. Then this total fair value, the difference between that and the book value equal to $435,000. We already know immediately $135 goes to the equipment, which means we have to increase the value of the equipment. We have to debit the asset and we have to create goodwill. Now, obviously the difference between $1,010,000 and $909,000 is the non-controlling interest, which we computed in the prior session. So here's what we have to do. The equity of the subsidiary should be eliminated. So we're going to have to debit common stock. We have to debit common stock 300, APEC 200, and additional paid in capital 75, which is we're going to have a debit of $575,000. The investment in the subsidiary $909,000 will have to be eliminated. We will do that. The non-controlling interest, which is $101,000 computed in the prior session will have to be created. Then we have to allocate the remaining, which is the $575,000, remaining of the extra fair value, the difference, which is, I'm sorry, it is the extra $435,000 as follow. $135,000 goes to the equipment, $175,000 to the intangibles, and the remaining $125,000 after we allocated, you know, $1,010,000 minus $575,000 book value, minus the tangible asset, minus the intangible asset, what's left is $125,000 for the good will. So you see how we allocated this. So make sure you understand how we do this. And let's look at the journal entry. Here's the journal entry. Debit the sub, credit the investment, debit the equipment, increase the value of the equipment, put the technology that, that unpatented technology on the book, debit the good will and create non-controlling interest, create the non-controlling interest. Now let's assume that the fair value of why company's asset was provisional. It means it was an estimate at the beginning on the acquisition date. Remember acquisition date was March 15th, year two, and the fair value is now known by July, basically, April, May, June, after three and a half months. We find out that the fair value should be 685, not 710. Okay, calculate the necessary adjustment to good will. We're going to adjust the good will, knowing that the change relate to the equipment. Remember the equipment, we thought it was worth, I believe, the equipment was worth 135 above fair value, 135. Now what we find out, it's not worth 135 above fair value. Now we need to prepare the adjustment necessary. Well, the adjustment needed to the recorded good will is an increase of 20, 25. So what's going to happen is this, we are going to make the adjustment to good will and reduce the land. Any subsequent adjustment will be made to good will. So simply put, we're going to increase good will by 25, okay, and we have to reduce the equipment by 25. Therefore we reduce the equipment, we credit the equipment 25, and we debit good will. Remember, we don't touch the investment. Now any adjustment goes to good will, any adjustment goes to good will, because we made them, not we made a mistake, it was a provisional estimate.  Given the change in fair value, we adjust good will. Now, impairment of intangible asset. Remember we have an intangible on the box, now we have to impair it. What I'm going to do, I'm going to cover this, the impairment of intangible asset as a separate recording, because I believe it requires separate recording. Now what should you do? Go to farhatlectures.com, if you are not a subscriber, subscribe, work multiple choice questions and exercises. This topic is important on the CPA exam. Yes, you have a CPA review course, try to supplement with my material, it will help you. Invest in yourself, good luck, study hard, and of course stay safe.