Reasons for a Weak Dollar are Still Strong
Israel is not the only country with economic problems. With
the possible exception of China, there is no major country in
the world that is satisfied with its recent economic
performance, and the prognosis everyplace for the future is
uncertain, at best.
This is no less true of the United States than of any other
place today. Though very rich and certainly militarily the
most powerful country, the US economy is struggling.
Officially the recession that began more than two years ago
is over, but the number of jobs is decreasing steadily there.
Even as economic activity picks up, slowly, most of the
people in the US are feeling the pinch.
In Israel, the government is struggling to balance
expenditures and income, mostly by cutting spending. Though
we strongly disagree about the government's priorities in
making these cuts, it is clear that some cuts are a vital
In the United States, this process is taking place among the
states, since most of them must, by law, balance their
budgets. But even at the state level, there is escapism. The
governor of California is threatened with "recall," a
provision of the state constitution that allows the citizens
to turn him out of office in the middle of his term. The
success of the movement to replace the governor of California
is the result of the financial difficulties faced by that
California's budget has plunged into deficit. State and local
governments in the US faced with deficits respond with
spending cuts and tax increases and that is exactly what the
current governor proposed.
California's state constitution requires that budgets be
passed by a two-thirds margin. This gives the Republican
minority blocking power, and the Republicans have refused to
approve the tax increases requested by the governor, and have
made no specific, realistic proposals for spending cuts.
The budget that was passed uses elaborate tricks to evade
restrictions on state borrowing. But that only passes the
problem on to next year. It's better than no budget at all,
but it's a monument to political irresponsibility.
California politicians do not seem to acknowledge any
connection between the government services the public demands
and the taxes that pay for those services. This approach is
taken now all across America -- and that includes the federal
government run from Washington.
We do not wish to blame anyone or express any opinion about
what should be done to correct the problem. There are many
opinions about what the real causes are and what should be
done about the problem. In foreign policy, and in particular
with regard to Israel, the government in Washington has
recognized the realities of terror and how it must be fought
in a way that is truly heartening from our perspective.
The federal government is now running an operating deficit
equal to a third of its spending. In just about two years the
budget has swung sharply from surplus to deep deficit.
The trade deficit, meaning the overall balance of American
exports and imports, is very big. The international value of
the dollar has fallen, but not enough to make a significant
change in the balance of payments.
The federal government is not in an immediate crisis because
it need not balance its budget each year. And so far people
have been willing to lend the American government money at
The government has been cutting taxes, saying that a rising
economy will lift its overall income to restore the balance.
So far there is no sign of this.
Almost exactly a year ago we wrote about this situation in
the American economy and government, and noted that some
observers expected the shekel to rise to as much as NIS 4.6
to the dollar. In fact the shekel fell below NIS 4.4 to the
dollar before rising a bit recently.
Many of the forces that caused this are still in effect, but
how it will end, is hard to foresee.
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