Text size

The dollar hit a 10-month low yesterday, trading at NIS 4.384. Although the dollar has steadily slid for six months, the 0.66 percent falloff yesterday was steep nonetheless. What concerns most to all who still hold the greenback is how low will it go? Is this the end of the slide?

As always, we never hear from the home buyers and renters when the dollar is down. They keep quiet and count their profits. The wider public can also look forward to less expensive vacations in the United States and cheaper American car imports. The merchants drag their feet, though; when it comes to prices, they only rush to keep up with rising dollars.

Who isn't smiling these days? A strong shekel is bad news for exporters. High-tech manufacturers highly dependent on American markets are sure to suffer and since Israel's growth is based on this sector, the dollar's position could stunt growth. Throw in the Central Bureau of Statistics report yesterday on a slowdown in growth and a decline in industrial exports and the economic horizon is no longer so rosy.

Back on the bright side, inflation is sure to stay low, as so many prices are still dollar-linked, such as housing.

But why the apparent worldwide woes for the dollar?

In fact, its global devaluation is the deed of the Americans themselves, who found an original way to raise their own standard of living at the expense of the rest of the world. They don't even consider cutting back but rather consume as if there were no tomorrow. The stores are full and the public celebrates. The American government is also wasting money and exceeding its budget.

The Bush administration has distinguished itself in huge budget deficits. Bush may have lowered taxes but he didn't cut expenses. The war in Iraq alone cost $150 billion so far. The results are a $420 billion deficit, 3.7 percent of gross domestic product, and a frightening $600 billion debt in its balance of payments.

In contrast, Israel has no balance of payments debt at all and it's much better off than the U.S. With stability giving a sense of control over the budget, the public is not running to buy dollars, leaving a strong shekel.

The meaning of the two massive debts is the enormous imbalance in the markets. The solution is: 1) raising U.S. public savings; 2) narrowing the budget deficit; 3) a significant devaluation of the dollar. The first two suggestions elicit objections in the public and the administration. The market takes care of the third. Everyone knows the dollar must weaken to allow exporters to get dollars for their euros and make importers pay more for their products. Only then will America begin closing its balance of payments gap.