Israelis who count on U.S. recovery are dreaming

The U.S. remains Israel’s most important market, but its economic recovery is stalling.

In recent years the Israeli government and the Israeli private sector have been very busy diversifying export markets and sources of financing and investment. They have concentrated on South Asia and the Far East, especially but not only India, China, Japan, South Korea and Taiwan. These countries and others have proven to be vital resources for the Israeli economy and in the case of China, an eager participant in joint educational projects as well.

This is all to the good and should be encouraged to continue. Nevertheless, Europe and the United States remain the major export markets for Israeli goods and important sources of financing and investment. Consequently, the state of the European and American economies is of fundamental importance to Israel’s economic future, at least in the near term.

But while that was going on, not much else was. The Federal Reserve’s policies of keeping interest rates at close to zero and buying huge quantities of government and commercial paper (“quantitative easing”) has led to nothing more than a gigantic excess of liquidity in a financial market where savers are not saving because they cannot get a decent return and investors are not investing because of a lack of anything to invest in, partially due to a precipitous fall in economic innovation outside of energy. Capital expenditures never recovered to their pre-2008 level. As a result of all of this productivity has not grown and thus the market for labor has been stagnant, with large numbers leaving the job market.

…Instead of over-liquefying the banking system, the United States should have been engaging in major public works programs, not only aiding productivity growth but putting many people to work. For reasons hard to fathom this was not done. As a result of a dismal outlook for the American economy, Israel cannot expect that essential market to grow anytime soon.

Full article: Israelis who count on U.S. recovery are dreaming (World Tribune)

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