Dei'ah veDibur - Information & Insight

A Window into the Chareidi World

7 Av 5763 - August 5, 2003 | Mordecai Plaut, director Published Weekly









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Shema Yisrael Torah Network

Opinion & Comment
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 necessity.

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 state.

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 low rates.

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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