Israel Matzav: Guess who's funding the US government deficit

Guess who's funding the US government deficit

A lot of Israeli economists got a good laugh when US Special Middle East envoy George Mitchell threatened in a PBS interview last week to withhold Israel's loan guarantees. Sever Plocker explains why.

At the height of the 2002 recession, the Israeli government approached the US Administration and asked that it approve loan guarantees that would enable Jerusalem to raise capital internationally. In exchange for these guarantees, Israel was asked to pay a risk premium in advance.

Back then already, Israel did not really need to raise capital abroad. A surplus was emerging in our international balance of payments that only grew in later years. The request from America was made for reasons of political backing and display of trust and support. The guarantees were approved in April 2003 to the tune of $9 billion over three years.

Since October 2004, Israel has made no use of the guarantees, whose validity was extended from time to time. A total of $3.8 billion in unused loan guarantees are just lying there.

A year ago, on the eve of the elections, both Netanyahu and Barak spoke about the possibility of using the guarantees as a lever that would pull the economy out of recession. After the elections they examined the statistics and discovered that Israel has a huge foreign currency surplus relative to our economy’s size. The notion of using the guarantees was abandoned, and rightfully so.

As of September 2009, Israel’s foreign debt totals $28 billion. Meanwhile, the State of Israel’s foreign currency reserves total $60 billion. Most of them are invested in US government bonds. That is, the Israeli government’s foreign debt stands at -$32 billion. Or in other words, at this time we, Israelis, are financing America’s debts – and not the other way around.

In other words, like China, Israel is funding Uncle Sam's Barack's borrowing, albeit on a smaller scale.

Tell that to all the anti-Semites who claim that the US gets nothing out of our special relationship.

Heh.

Israel Matzav: Guess who's funding the US government deficit