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Thursday, August 4, 2011

Financial Connection Between Israel and the USA

Nadene Goldfoot
The United States just had a close call with their finances and are still working on improving their budget plans.  It has had to borrow money from China.  Whether or not to tax the richer population more is argued about constantly, and so far it hasn't had to happen.

Israelis are among the most highly taxed people in the world.  They pay up to 48% of their income in taxes.  This country's average gross annual income for a family of four was about $16,800 between 1984 and 1992.  I was a teacher with 22 years of experience and after retraining for 10 months in Israel obtained a teaching position in 1981 with a take-home paycheck of about $300 per month.  I opted to live in a government apartment and paid $8 per month rent.  It was a shell and had absolutely nothing in it.  I was able to get my 13 year old neighbor to build me a counter for my teeny kitchen out of the crate our belongings arrived in as wood was so scarce.  I used oil cloth to cover it.  Thinking of the $20,000 per year income I had left behind in the USA made me wonder about my sanity at times.  That had been much better than what I would have made in Idaho or Texas, but nothing like what teachers were making in New York or Alaska.  I had given it all up to live as a modern pioneeer in order to spread the English language so that people could understand each other.  Besides that, Israel was born in my life time and I felt the responsibility to do all I could to help it along. 

Jews from all over the world have moved to Israel to join Jews  who had never left there.  This is the in-gathering spoken of as something miraculous that would happen. Jews  have made many sacrifices in order to see Israel continue to live. 

The USA has been its big brother and has helped immensely.  Being the USA is the 3rd largest country in the world made of from 3,717,813 square miles to 3,794,100 square miles, depending on the source, it is monsterous compared to the  7,992 square miles making up Israel.  Portland, Oregon consists of 2,000 square miles.  Teeny Israel is only 263 miles long and from 9.3 miles to all of 71 miles wide in places.  Judea and Samaria together are 2,270 square miles.  East Jerusalem is 27 square miles and the Golan Heights is 444 square miles.  On top of this, over half of Israel is the Negev Desert which takes up 4,633 square miles of Israel's land, not mentioning the Judean Desert as well that touches on Jordan.  Israel is slightly smaller than New Jersey, which is America's 47th smallest state of 8,721 square miles.   

Israel has had a huge defense burden since its inception making about 20% of their budget expenses.  Israelis saw their standard of living slowly decline when they experienced Russians arriving by the thousands from the former Soviet Union and Ethiopia.  They hadn't been allowed to practice their religion.  People could be jailed for studying Hebrew.  I lived in Israel from 1980 to the end of 1985.  My Ulpan was made up of many Russian immigrants.  During that time Ethiopians also arrived in 3 airlifts. From 1977 to 1985 16,000 Ethiopians immigrated.  These Falashas or Beta Israelis  also were being persecuted for being Jewish.   Up to 1989 400,000 Jews entered Israel from Russia.  This was the reason for its creation;  to give Jews a haven of safety from hatred of the world.  The Israeli citizens accepted great sacrifices to facilitate these immigrants to be integrated into their society. 

Oil fields in the Sinai were given up for the sake of peace with Egypt, forgoing the chance to become energy independent.  As the oil prices vary, so does their economy.  Today  gas and oil has been found off shore, discovered by Noble out of Texas among others.  Measures are being taken to be able to make use of this one day.

In 1985 Israel created a stabilization program which meant:
1. A large cut in subsidies on basic products and services
2. Devaluation of the shekel followed by a stable exchange rate against the dollar.
3. Wage and price controls and the ending of direct indexing of wages and savings to inflation
4. Policy controlling the growth of credit which drove interest rates up. 

The New York Times described Israel's sacrifices and the stabilization program as "Everybody takes a step backward--together.  Up till then the shekel's value varied by the minute.  People were obsessed in knowing the value before they did a thing.  This is one thing that Americans haven't ever had to contend with; value of their money compared to the dollar. 

The stabilization program worked!  Inflation fell from triple digits to about 20% annually.  The shekel stabilized and foreign currency reserves recovered.  Exports increased and the budget deficit shrunk.  The government continued to slash subsidies on food and public services like health care and education.  They removed price controls and reformed the tax structure.  This was painful and did create inflationary pressure, but everyone saw the need. 

By 1990 a new economic program began to pay for the absorption of Soviet Jews which raised taxes and  freed capital and foreign-currency markets  in order to stimulate private investment and to create jobs.

Israel is one of the few USA foreign aid recipients that has taken the USA advice to make major reforms in its economy.  It's one of the most open markets for USA goods.  In 1985 the Free Trade Agreement allowed USA goods to compete equally with Europe's goods.  Canada and Mexico have now joined the group.  Exports to Israel have doubled and trade between USA-Israel has gone up 44% to over $5 billion.  It means more sales and profits for American exporters.  Israel is 2nd only to Canada in per-capita imports of USA products.  

Israel received $1.8 billion in foreign Military Financing.  More than 80% of this money was spent in the USA which generates profits and jobs.  Hundreds of contracts go on between the two countries of USA and Israel.  1,000 companies in 47 states, Washington DC and Puerto Rico had signed contracts worth more than $4.2 billion.  Among the states were:

New York:  $901,257,199
California:     405,193, 420
Florida:        249,177, 540
Maryland      89, 957, 587
Wisconsin     41,429,  003
Oregon           6,119,  409 

USA grants to Israel ended way back in 1959, 11 years after its birth.  From then on until 1985, financial aid was largely in the form of loans which Israel repaid.  Israel also bought surplus commodities.  Israel began buying arms in 1962 from the USA.  It did not receive any grant military assistance until after the 1973 Yom Kippur War.  Then Israel went into great debt to finance its economic development and to be able to buy arms.  In 1972 Israel received a $50 million dollar grant for economic assistance.  All aid became grants in 1985 which amounted to the same amount of money Israel must repay on the interest on loans from earlier years which was more than $1 billion annually.  Military aid was converted to grants  because the prevailing view in Congress was that without a strong Israel, war in the Middle East was more likely and that would cause the USA to face higher financial problems.  In 1990 USA gave $400 million in loan guarantees to help Israel house newcomers.  Guarantees are not grants.  No money was transferred to Israel.  This meant that the USA cosigned loans for Israel that allowed it to get more favorable financing from private American banks.  Israel never defaulted on its loans, so it had no impact on American taxpayers.   No USA foreign assistance can be used beyond Israel's pre-1967 borders.  Israel has had to give a full detailed report on the money spent from all USA assistance.  It also gave the USA written assurances that it would not settle Soviet Jews in Gaza, Judea or Samaria.  This was no problem  at all for Israel as most all Russian Jews preferred to settle in the Tel Aviv areas anyway.  According to a 1991 State Department report, only 1.2% of Russians chose to live there. 

Why bother with this teeny state of Israel?  Why care about the birth of the world's only Jewish state?  General Omar Bradley saw reason besides President Harry S. Truman.  In 1952 Bradley foresaw the West needing 19 divisions to defend the Middle East and Israel could supply 2 of them.  The West would need   air power and could then depend on only Great Britain, Turkey and Israel.  The USA didn't take his advice, opting to work with Egypt and then Iraq instead.  They feared that Israel's presence would alienate the Arabs.  In 1967 after Israel won the 6 Day War, they revised their thoughts.  Then the Phantom jets were sold to Israel.  Instead of just trying to keep a balance, they finally thought to give Israel an edge over its enemies. In 1970 Israel helped in bolstering Jordan's King Husseins's regime, an Arab country.  Israel aided Amman, Jordan  and this persuaded Syria to withdraw their tanks which were there to support the PLO (Fatah Palestinians).  Besides this, a message was sent to the Soviets that USA squadron leaders from the 6th Fleet could land in Israel.  Now the USA realized that the Arabs would not help them.  We have had cooperation and joint ventures in research and development of many weapons systems.  Joint exercises and exchanges of information continues.  America's Gulf War involved using Israel-produced weapons and intelligence.  Today cooperation includes Israel intelligence on fighting terrorism as well. 
Reference: Myths and Facts, a concise record of the Arab-Israeli conflict by Dr. Mitchell G. Bard and Joel Himelfarb 1992

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