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Business Management

The Price Is Going Up

Unavoidable world events will cause prices to rise.



On a hot, August afternoon, while his son, James Howard, and I were sitting on the porch of a West Virginia cabin, my friend Claude Dillon taught me how to catch a frog. James Howard and I were both 13, and I, a visitor from the city, was having a hell of a good time. I was oiling a Daisy “Red Ryder” air rifle while James Howard, the oldest of Claude’s eight children, ran a cleaning rod through his Remington .22-caliber, single-shot. James Howard was taking me squirrel hunting, once the day cooled. I’d recently met Claude and quickly started a lifelong friendship. Later, I learned that Claude had visited Germany with Patton’s Third Army, and, that experience, I believe, caused him to see life’s values more clearly than most people. At times, I sensed that he held an extraordinary secret. He chose personal freedom over regular jobs and untamed hills to city streets. Furthermore, he had a delightfully mischievous sense of humor and employed it whenever possible. James Howard and I were working quietly when Claude stepped on the porch. He appeared deep in thought, somber. “Men,” he said, “I’ve just realized that I haven’t instructed you on the proper way to catch a frog.” He sat down on the hewn steps in front of us, sideways, so he could see our faces. His son and I leaned forward on our hard oak chairs. Grave as a preacher, Claude said, “It’s a matter of you being smarter than the frog,” he said. “To catch one, you roll a BB in front of it, and the frog, thinking the BB is a bug, will flick out its tongue and eat it.” Claude picked up a copper-colored BB pellet that had fallen from my lap and rolled it, slowly, along a porch board. He continued, “If you roll several dozen BBs, one at a time, the frog will become greedy and swallow them all. After so many BBs, the frog will become too heavy to hop – so you can walk over and pick it up.” Ten years passed before it dawned on me – a frog won’t eat a damn BB. Today, I can’t help but wonder if Claude was teasing two 13-year-old boys on how to catch a frog or, in fact, giving them an early lesson in international economics. Queen Elizabeth has knighted Bill Gates. She did so during his recent visit to Buckingham Palace. She said it was to “honor his work in employment, education and helping to reduce poverty in the developing world.” Because of this, Gates is now a “Knight Commander of the Most Excellent Order of the British Empire,” but not a true knight. Only British citizens may become a true knight. Gates can write “KBE” after his name, but that’s about it. Accompanying news articles noted that the Bill and Melinda Gates Foundation helped set up a $210 million international scholarship program at the U.K.’s Cambridge University. That may have helped inspire the honorable title. The foundation has contributed large amounts of money to various causes worldwide. Your cost of our declining dollar Bloomberg quotes Gates, at the World Economic Forum in Switzerland, as saying he believes the dollar will extend its decline. At that event, Gates said, “I’m short the dollar,” a seemingly harmless statement until you research investors’ lingo. Investors hedge their portfolios by “shorting” the dollar, meaning they buy other currencies – the euro, for example – to profit from the dollar’s decline. A fair practice, indeed, but it can contribute to the further decline in the dollar, and that may hurt the rest of us. (You may remember, in 1992, billionaire George Soros was said to have earned one billion dollars in a day by betting on [and perhaps causing] the devaluation of the British pound.) Soros won, but the average British citizen — those that can’t afford it — lost. Devaluing, when controlled, isn’t all bad. For example, devalued currency lets the United States pay off its foreign debt with inflated dollars. The ripple effect is that foreign investors, seeing the depreciation, may decide to sell off their dollars and, by this, cause even more devaluation. For example, CBS, in March, reported that “the share of dollar deposits in Asian banks had dropped [14%] to 67% in the third quarter of 2004 from 81% in the third quarter of 2003.” Meaning, as foretold, Asian banks are choosing to diversify their dollar reserves. The article also said the euro had traded above $1.33 for the first time since January 4. For working Americans, devaluing becomes an expense. Analysts say a 1% decline in the dollar’s value causes a $100 loss of purchasing power for the average American household – 20%, they say, will cause a loss of approximately $2,000 per year. The dollar’s value rises or falls according to three factors: the management of interest rates, federal-budget deficits and trade shortfalls. But, because America’s budget deficit and trade shortfalls are financed by its foreign-trade partners, a loss of confidence on their part could cause a devastating run on the bank. WorldNetDaily quotes China’s National Economic Research Institute’s (Beijing) director, Fan Gang, as saying, “The U.S. dollar is no longer – in our opinion – a stable currency and is devaluing all the time.” It further quotes a Chinese Central Bank adviser as saying, “The U.S. should take the lead in putting its own house in order.” Why oil prices are rising Sure, OPEC idiosyncrasies and Middle East traumas are part of the gasoline-price dilemma, but a February 28 New York Times article tells of what may become an even larger energy challenge. It says China is signing oil-trade agreements with Venezuela. China, also, is investing in Peru’s oil operations and exploring opportunities in Bolivia and Columbia. “China’s sights,” the Times article says, “are focused mostly on Venezuela, which ships more than 60% of its crude oil to the United States.” Venezuela, one of the four main providers of imported crude oil for American oil companies, has the world’s largest oil reserves outside of the Middle East. Venezuela’s president, Hugo Chavez, recently signed 19 long-range agreements with the Chinese. These agreements included plans for involvement in Venezuela’s oil- and gas-field development. The Times says Venezuelan government officials state its ties with America will remain stable, but that doesn’t preclude diminished shipments and higher prices. You may remember, the 2002 oil-price increases were attributed to oil-shipment delays caused by a Venezuelan workers’ strike. Further, Chavez has demanded higher taxes from oil exporters; he’s also increased royalty payments from 1 to 16.6%. As you’ve seen, the oil companies pass these expenses on to us. Roger Tissot, an analyst with PFC Energy, a Washington DC-based, energy-consulting company, says foreign oil firms – Russia’s Gazpromneft and China National Petroleum Corp. – are seeking joint agreements with Petr



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