Jun 19, 2017
The War on Israel's Consumers
A Guest Post by Dr. Harold Goldmeier
The Bank of Israel
Prepares for a War on Consumers
I just read a frightful interview Globes conducted and posted to its web site on June 15, 2017, with
the Supervisor of Israel’s banks, Hedva Ber.
Supervisor Ber warns consumer debt is rising at too rapid
apace and approaching “out of control.” Thus, her office is considering
stringent measures to brake consumer borrowing. It sounds like the Supervisor’s
office is preparing to declare war on Israel’s already financially strapped and
struggling citizens. Household debt (not for mortgages) tops NIS 511 billion.
NIS 325 billion is collateralized by equity in houses.
Household debt is caused by too little income to pay for
food, clothing, utilities, health insurance, prescriptions, etc. A Taub Center staff report (February 28,
2016) confirms that, “Israelis feel it in
their pocketbooks—living in Israel is expensive. High prices on basic
necessities combined with low wages relative to other developed countries lead
many Israelis to struggle to make ends meet.”
For example, it is widely reported Israelis pay 48% more for
toiletries than consumers abroad; food prices are 25% higher than in Europe;
Israeli made chocolate cost more in Israel than in Europe. Salaries of teachers
rank at the bottom of 34 other developed countries (worse in terms of
purchasing power parity), and less than Mexico’s teachers.
Courtesy THE
BLOG on HUFFPOST Tom Ostapchuk
Jan 13, 2017
The Missives
Ber warns her Banking Supervision Department will not stand
idly by watching debt grow. “We have
reached the point where we have to be careful,” and if these conditions
persist, “we’ll intervene. We have many tools, and we won’t hesitate to use
them.” Sounds like the language President Trump uses to ISIS and North Korea.
The Shattering
Reactions
I won’t speculate how and when the Ber will take action, but
there will be severe consequence for the Israeli people.
A credit crunch will
·
Spark consumer credit shock
spreading amongst the working poor, unemployed and underemployed. These classes
make up the bulk of the borrowing public
·
Loans from banks will dry
up and fees for loans will sharply increase
·
Citizens are likely to
default on existing loans and mortgages in favor of putting food on the table,
buying medicines, and paying expenses for children
·
The numbers of homeless
will increases and small businesses go under
·
People will cutback on
retail purchases
·
Mortgage defaults will drag
down housing prices and undermine bank solvency
·
Monthly interest rates for
mortgages are already on the rise tied to a tenacious web of international
benchmarks: LIBOR, foreign currency rates and more; concomitantly, people
depending on overseas income from work and family watch the dollar and pound exchange
rates tumble exacerbating the deterioration the living standard in Israel
·
More Israelis will
throw-in-the-towel, and join the approximately 1.5m Israeli Jewish ex-pats
(@12% of the population) living overseas
·
Mass aliyah is not going to
happen according to the Jewish Agency, and 30% of olim leave Israel within
three to six years because of the economic hardships
·
Tighter credit and the US
lowering its corporate tax rate to 15% will encourage Israeli companies to
relocate with their jobs
Good Intensions Are
Not Enough
Let’s hope Ms. Ber and her colleagues don’t initiate actions
they threaten that blame the victims for unsustainable consumer credit levels.
Let’s urge her to close the flaring income gap between rich and poor that
presents more of a threat to Israeli society. 10% of Israeli children already
go to bed hungry (14,513 in 2006 compared to 17,677 in 2017), according to
Israel National Council for the Child.
Household debtors are not enemies of the State. They are
survivors. Ms. Ber, keep that in mind. To quote a famous American, “The nation
is prosperous on the whole, but how much prosperity is there in a hole?”
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How is the BOI supposed to "close the gap between rich and poor"? By transferring money directly between accounts? By not letting banks manage rich accounts unless poor people have them too?
ReplyDeleteWhat the BOI is responsible for is preventing another credit bubble a la EnRon which would bring down the entire economy - rich and poor alike. If the banks foreclose on the "rich", those poorer people will still be fired, lose income, and need to default in order to eat - and they won't have any hope of future income to boot.
Lots of good points.
ReplyDeleteSome more: despite the scaremongers about the slight increase in the mortgage interest rates (the banks should be investigating for that), mortgage defaults are low and not rising, actual foreclosures are relatively rare, and hotza'ah lefoal case are also decreasing.
A main problem are the car loans and another one is the ability to take loans from numerous places, especially the private firms that pop up all the time.
This is a great lead-in to an Economic Reform webinar that I am running this coming week: https://zehutint.lpages.co/gilad-alper-webinar-register/
ReplyDeleteGilad Alper, an advisor to the Ministry of Finance is presenting the Zehut Economic Reform policy. You all should sign up.