I suspect that U.S. envoy George Mitchell’s threat that the U.S. may withhold loan guarantees from Israel if Israel fails to adhere to U.S. policy re the West Bank would have more “bite” if Israel’s fiscal house wasn’t currently in much better order than the U.S.‘s.
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neurodoc says:
What is expected of the Palestinians, and what is Mitchell threatening them with if they don’t meet those expectations? Is it consistent with those expectations, which included one that the Palestinians would stop promoting hatred of Jews, that Abbas and Fayyad, both “moderates,” have lionized the three “shahids” that Israel took out after they murdered an Israeli rabbi, the father of seven, and the PA sought to prevent their apprehension? Endless carrots for the Palestinians to induce them to budge, sticks for Israel to grant concessions in the absence of meaningful assurances that they will not compromise their security.
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January 10, 2010, 11:20 pmMike G in Corvallis says:
That also makes me wonder what, if anything, this administration would do if China decided to forcibly bring Taiwan back into the fold.
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January 10, 2010, 11:30 pmJKB says:
Long ago, I came to the realization that US foreign policy was based on buying our friends and paying off our enemies. Your comment reminded me of this and the consequences of the champagne running out for our international party.
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January 11, 2010, 12:30 amKJ says:
Fiscal houses in order? Have even a vague idea of what you’re talking about?
https://www.cia.gov/library/publications/the-world-factbook/rankorder/2186rank.html
The guarantee saves Israel real money.
BTW How are those inflation hedges working out for you?
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January 11, 2010, 1:54 amAnton Sirius says:
It might also have more bite if McCain and Lieberman weren’t in Israel publicly sabotaging the efforts of Mitchell and the White House.
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January 11, 2010, 3:07 amDavid Bernstein says:
Yes, KJ, you’re a financial genius for citing outdated statistics from 2008 re public debt to show how “in order” the U.S. fiscal picture is.
But you might have missed this, which isn’t exactly a secret: “During March 2009, the Congressional Budget Office estimated that public debt will rise from 40.8% of GDP in 2008 to 70.1% in 2012. The total debt is projected to continue increasing significantly during President Obama’s administration to nearly 100% of GDP [significantly higher than Israel’s], its highest level since World War II.” And if I’m not mistaken, the latest figures are even worse.
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January 11, 2010, 8:09 amlgm says:
You’re somehow claiming that aid from the US is not important for Israel. Well, Israel, with about 7.5 million people, gets about $2.5 Billion/year from the US government. It gets a comparable amount from private sources within the US. Much of this money goes to supporting illegal land seizure and building.
Should the US adopt the position government money should not support illegal activities abroad, the consequences for Israel would be serious. Should it adopt the policy that US citizens are not allowed to fund illegal activity abroad, as they are forbidden to do within the US, the result for Israel would be “interesting”.
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January 11, 2010, 9:09 amPersonFromPorlock says:
Announce economic reprisals. Then waffle as soon as they realized they’d just shut down the US retail sector.
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January 11, 2010, 9:09 amDavid Bernstein says:
It must take some effort to write a sentence in which three of the four sentences are false.
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January 11, 2010, 9:37 amYankev says:
The US never enforced those expectations against Arafat y“sh; why would we start enforcing them against Abbas, the supposed moderate?
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January 11, 2010, 9:39 amYankev says:
Out of curiosity, which one wasn’t?
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January 11, 2010, 9:41 amDavid Bernstein says:
Number 2.
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January 11, 2010, 10:06 amKJ says:
It strikes me that, at some point, your analyses should confront actual reality.
Could Israel somehow issue debt more cheaply without the guarantee?
And if not, how would this move lack bite?
Has the vast increase in supply of Treasury debt increased Treasury rates? Or is that just the orthodoxy?
Has the vast increase in money supply inflated prices? Or is that just the orthodoxy?
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January 11, 2010, 11:30 amNorris Hall says:
If Israel says they don’t need the loan guarantees...then why is the US government offering them????
Sounds like a waste of money...giving loan guarantees to people who don’t need them
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January 11, 2010, 11:40 amYankev says:
Because contrary to widely held belief, Israel does not try to dictate the actions and policies of the US; the US tries to dictate the actions and policies of Israel, and the loan guaranties have been a convenient way to do so.
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January 11, 2010, 12:04 pmSwan Trumpet says:
There’s a great deal of misunderstanding regarding the loan guarantees the U.S. routinely makes to Israel. They aren’t loans and since Israel has never defaulted — they don’t cost American taxpayers a dime. The U.S. merely cosigns loans that Israel obtains from a variety of foreign banks. Using these guarantees Israel has been able to achieve lower interest rates. The U.S. always benefits since the guarantees include requirements forcing Israel to spend a certain percentage of the guaranteed amount on US aircraft and other manufacturers instead of using the funds to say, purchase French Mirages. For the U.S. the loan guarantee program has been a win/win, boosting our export market and creating jobs.
Now that our dollar is in decline and our debt unsustainable, the value to Israel of any American loan guarantees is negligible. George Mitchell (of Lebanese descent) is allowing his personal bias to interfere with his judgment of what’s in the American interest.
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January 11, 2010, 12:11 pmKJ says:
No. Because the guarantees are worth real money to Israel. That’s why they are offered and accepted.
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January 11, 2010, 12:28 pmlgm says:
I made three statements. Which ones are false?
1. Israel benefits from US aid.
2. Lots of private money from the US goes to Israel.
3. Lots of this money goes to fund illegal activities in the occupied west bank.
As your post points out, Israel is free to turn down American aid. If they come begging to us for money, why should we not take an interest in what they do?
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January 11, 2010, 12:37 pmChris Travers says:
That must be why the last two Republican presidents have withheld loan guarantees, etc. from Israel but the Democratic presidents haven’t.
Shortsighted, partisan politics.....
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January 11, 2010, 1:58 pmDotar Sojat says:
Well, Anton, good for them.
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January 11, 2010, 2:41 pmYankev says:
The question was not why Israel has accepted them. The question is why the US would offer them if Israel does not need them. As Swan Trumpet pointed out, another reason is that the US is able to condition the guarantees on Israel using the loans to purchase American products.
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January 11, 2010, 3:17 pmAriel says:
Professor Bernstein,
I believe you are right that it would have more “bite.” However, the loan guarantees are still important to Israel in many ways. They do lower Israel’s cost of borrowing. That is true regardless of the state of our fiscal house or theirs.
I agree with the statement made by Yankev that we are using the loan guarantees and military aid to try to control Israel. Curiously, we provide a great deal of funding to the Palestinians and Egyptians, but without strings such as Mitchell proposes.
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January 11, 2010, 3:21 pmYankev says:
And without accusations that either of them are dictating US policy. Odd, given the hundreds of years of speculation about an International Egyptian Conspiracy and all that.
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January 11, 2010, 3:54 pmSwan Trumpet says:
I can assure you that a wealthy Swiss bank considerng a multimillion loan to Israel is going to consider the economic health of Israel and any other guarantor. Since late last year, the Chinese have cut off American credit, the Fed is monetizing the debt, and Treasury is printing dollars keeping us on economic life support. I strongly doubt that an American guarantee is going to impress any banker to lower the interest rate for Israel.
Luckily for President Obama and George Mitchell, the Israelis have a deep and enduring respect and affection for America. Instead of simply shrugging Mitchell’s threat off, they could have used it to ridicule the United States on the world stage.
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January 11, 2010, 4:09 pmBrett says:
I suspect hitting the military aid for Israel would probably have more effect, but we’d be hurting ourselves as well in the pocket, seeing as how our military aid basically consists of vouchers to Israel to buy American-made weaponry.
The US can simply threaten to do nothing, or pull the support that Dayton has been giving to the PA’s police force. That’s one of the reasons why the Palestinians don’t simply scoff at the idea of the US as arbiter, even though we’re far from neutral.
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January 11, 2010, 4:42 pmAriel says:
Yankev — LOL!
The banker would certainly consider Israel’s economic health and that of any guarantor. I was making a more trivial claim — the fact that there is a guarantor who has some non-zero level of credit means that Israel will get a lower rate. Now, would the US have as much of an impact as five years ago? Probably not. But I don’t think your statement that it would not lead to a lower interest rate is accurate. At the least, the banker has two potential pockets to tap, which is not nothing.
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January 11, 2010, 5:58 pmSwan Trumpet says:
A few fundamentals: Israel does not need any loan guarantees. They prefer them because they enable borrowing at a lower interest rate. Israelis live in a nasty part of the world and from a lender’s perspective — they are in a high risk pool that pays higher interest rates for long-term loans. After all, not every country has depraved enemies sending rockets into it on a routine basis nor mad midget mullah neighbors threatening to nuke them into oblivion. In the past, lenders have waived the high risk rates as the US guaranteed they would make good on any loan in the event Israel defaulted. The Israelis have never defaulted.
Today, the US is at risk of defaulting on its own debt to the Chinese. No lender is going to have confidence that the U.S. would be able to cover the Israeli debt in the event of a default. Therefore, with or without the U.S. Israel will remain in the high risk pool — unless they get the Chinese to guarantee their loans.
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January 11, 2010, 8:46 pmGranite26 says:
Using the admittedly outdated world factbook data:
Israel’s GDP ~= 200 Billion dollars (203.4)
Debt Ratio ~= 75%
US GDP ~= 14.4 Trillion dollars
If the US had to repay all of Israel’s (est) 150 billion dollars in debt, it would add about 1% (1.04) to the debt ratio of the US.
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January 12, 2010, 2:52 pm