Yesterday the Bank of Israel announced that it would be buying hundreds of millions of US dollars, which will be added to the immense mound of dollars already piled up in its basement.
Two years ago, I wrote that a 17 trillion dollar debt is not an obligation that the US intends to pay off. In the meantime, the federal debt has climbed to 18.7 trillion dollars and the US has to resort to borrowing new money to pay off the existing debt. In addition, the government has to take on new debt in order to continue to finance its federal deficit.
It is reasonable to assume that the Fed will significantly increase the (digital) printing of dollars. This will devaluate the dollar and will effectively allow the US to allocate its debt to all the pushovers holding its valueless green bills.
So why does the Bank of Israel insist on accumulating more of these dollars?
They tell us that Israel must weaken the shekel against the dollar to preserve the profitability of its exports and that we must be ready for a crisis. Apparently, the Bank of Israel has forgotten why the State of Israel engages in export. Israel exports in order to gain foreign currency with which it can import what it chooses. That is all. The purpose of export is to finance import. Export is the tool, not the goal. If the Bank of Israel weakens the shekel to help exports, it simultaneously makes imports more expensive and exacerbates the problem of the high cost of living.
By the way, if the State of Israel is so eager to help exporters, there are ways to accomplish this without doing a disservice to the rest of Israel’s citizens. For example, it can lower the Company Tax and annul some of the predatory regulations that devour every positive sign of growth for the companies. (In almost all the capitalist nations of the world, the regulatory burden on companies is much smaller than in Israel).
As to the reasoning that Israel has to buy dollars in order to be prepared for crisis: If in time of crisis your balance turns out to be valueless, how exactly did that help you to be prepared? On the contrary – the dollars in your possession have only aggravated the crisis. The Bank of Israel must diversify its foreign currency holdings much more vigorously than it has done until now. For example, many of the world’s central banks buy gold. Why shouldn’t the Bank of Israel do the same – just to be prepared?
Today the Bank of Israel has a new excuse. In its announcement on its purchase of dollars, it mentioned the need to offset the influence of the profits from Israel’s sale of natural gas. In other words, the shekel is stronger because of the gas discovery, so let’s weaken it and subsidize the exporters at the expense of the citizens.
The Bank of Israel continues to harness Israel’s economy to the American Titanic. Of course, the fact that the Governor of the Bank of Israel who initiated this strange policy is now the Vice President of the Fed can’t have anything to do with it…