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<DIV><FONT face=Arial size=2>Hey all,</FONT></DIV>
<DIV><FONT face=Arial size=2></FONT> </DIV>
<DIV><FONT face=Arial size=2>Excuse, perhaps, my economic ignorance, but I have
some questions revolving around the Israeli economy, specifically centering on
the drastic weakening of the shekel in the past year or so, and the responses of
the Ministry of Finance and the Bank of Israel.</FONT></DIV>
<DIV><FONT face=Arial size=2>people who feel job security are willing to put out
more on consumer items.</FONT></DIV>
<DIV><FONT face=Arial size=2></FONT> </DIV>
<DIV><FONT face=Arial size=2>External Factor Inflation: Rising costs for raw
materials due to shortage, embaro, natural disaster, etc. Plus
relative weakness of a local economy compared to world market, means
rising price of foreign goods. Which may be fine for an economy which has
many domestic raw-materials, production, etc., however, for an economy like
<DIV><FONT face=Arial size=2></FONT> </DIV>
<DIV><FONT face=Arial size=2>First off, it seems to me that there are basically
two general types of inflation (I don't know real definitions so I am just
making up my own names for them): </FONT></DIV>
<DIV><FONT face=Arial size=2></FONT> </DIV>
<DIV><FONT face=Arial size=2>Strong Economy Inflation: Falling unemployment,
rising real wages, higher consumption levels, better worker benefits,
etc. In this scenario inflation is partially due to businesses raising
prices due to trying to keep profits up and increasing while having to increase
wages at the same time, plus raising prices due to a perception that
</FONT>Israel, which imports a huge majority of its raw-materials, energy needs,
and even finished consumer products, relative rise in foriegn goods without any
competing quality local made goods means rising costs across the
economy.</FONT></DIV></DIV>
<DIV><FONT face=Arial size=2></FONT> </DIV>
<DIV><FONT face=Arial><FONT size=2>Obvioulsy Israel is in the second type of
Inflationary period...which in our case seems to me pretty much a form of
stagflation: an inflationary period accompanied by rising unemployment and lack
of growth in consumer demand and business activity.</FONT></FONT></DIV>
<DIV><FONT face=Arial size=2></FONT> </DIV>
<DIV><FONT face=Arial size=2>Israel has raised the interest rate several times
in the past year (last week rasing it 1 1/2 percentage points), all at a time of
rising unemployment, lack of growth, etc. In a Strong Econmy Inflationary
period, (so the neo-liberal economists tell us) raising interests rates is done
to slow the economic growth down, create more 'slack' in the workforce,
etc. However in the External Factor Inflationary period, falling
unemployment, rising real wages, higher consumption levels, stock market growth,
etc. are anything but the problem, and therefore, rasing interest rates are
not going to get at the problem at all, but they will exacerbate the
slow growth, unemployment, they are a disinsentive to take out business loans,
etc.</FONT></DIV>
<DIV><FONT face=Arial size=2></FONT> </DIV>
<DIV><FONT face=Arial><FONT size=2>So where is the logic?:</FONT></FONT></DIV>
<DIV><FONT face=Arial><FONT size=2></FONT></FONT> </DIV>
<DIV><FONT face=Arial><FONT size=2>Perhaps, if I have this correctly, raising
interest rates makes your currency relatively more desireable to buy, thereby
strenthening your currency in relation to
others. Further, higher unemployment and<FONT
size=+0> </FONT>falling wages can make your country look more desirable to
foreign investors who want to move production to an econmony which will cost
them relatively less to manufacture goods.</FONT></FONT></DIV>
<DIV><FONT face=Arial size=2></FONT> </DIV>
<DIV><FONT face=Arial size=2>However, with the regional political situation as
it is, and the still high wages and production costs in Israel in comparison to
India, Thailand, etc. I don't see foreign investors flocking to Israel and
thereby boosting our economy. So any benefit that could come from the
actions of the Bank of Israel, wont...</FONT></DIV>
<DIV><FONT face=Arial size=2></FONT> </DIV>
<DIV><FONT face=Arial size=2>So we are getting the insanely bad results of their
economic moves, without the benefits they forecast.</FONT></DIV>
<DIV><FONT face=Arial size=2></FONT> </DIV>
<DIV><FONT face=Arial size=2></FONT> </DIV>
<DIV><FONT face=Arial size=2></FONT> </DIV>
<DIV><FONT face=Arial size=2>So, if anyone can explain this all to me, and
inform me of any lapses in my economic logic, </FONT><FONT face=Arial size=2>I
would be most pleased. </FONT></DIV>
<DIV><FONT face=Arial size=2></FONT> </DIV>
<DIV><FONT face=Arial size=2></FONT> </DIV>
<DIV><FONT face=Arial size=2>For background see: <A
href="http://news.haaretz.co.il/hasen/pages/ShArt.jhtml?itemNo=%20175397&contrassID=2&subContrassID=2&sbSubContrassID=0&listSrc=Y&itemNo=175397">http://news.haaretz.co.il/hasen/pages/ShArt.jhtml?itemNo=%20175397&contrassID=2&subContrassID=2&sbSubContrassID=0&listSrc=Y&itemNo=175397</A></FONT></DIV>
<DIV><FONT face=Arial size=2></FONT> </DIV>
<DIV><FONT face=Arial size=2>or any of the various articles published on the
matter in Ha'aretz of late.</FONT></DIV>
<DIV><FONT face=Arial size=2></FONT> </DIV>
<DIV><FONT face=Arial size=2>Best,</FONT></DIV>
<DIV><FONT face=Arial size=2></FONT> </DIV>
<DIV><FONT face=Arial size=2>Bryan</FONT></DIV></BODY></HTML>