This week, for the 12th time in a row, U.S. Federal Reserve Board Chairman Alan Greenspan raised America's interest rates, setting the basic rate at 4 percent.
Here in Israel, Bank of Israel Governor Stanley Fischer raised the key lending rate to 4 percent almost two weeks ago, fearing that if he did not, Israel's rates would be lower than those of the U.S., causing people to flee to the dollar, the shekel to plummet, and prices to rise. Was this fear justified?
Israel's expected inflation rate is within the range defined as price stability: not more than 3 percent. The economy is still not growing at its full potential, and unemployment, at about 9 percent, is very high. In the U.S., the economic situation is different: Inflation is higher, real interest rates are close to zero, unemployment is very low, and the economy is expanding at its full potential.
Fischer believes that a depreciation of the shekel would automatically lead to a rise in inflation, but this fear is baseless. Once, 20 years ago, that was true. Since then, however, we have grown up: Depreciations no longer automatically translate into higher prices. It depends on the budget, the deficit and the public's faith.
The funniest thing is the Bank of Israel's explanation that "the bank's models indicate a need to raise interest rates." As if we have forgotten that these are the same models that misled the bank so badly in the past.
The Fed plans to continue raising interest rates, but we do not have to keep following suit. We should not be so afraid of a situation in which Israel's interest rates are lower than those of the U.S. That also has happened in other emerging markets, such as the Czech Republic, Taiwan, Thailand and South Korea.
Obviously, from Fischer's standpoint, it is safer to raise rates - just as it is always safer to wear both a belt and suspenders. But excessively high interest rates have a price: less growth, less employment and a heavier burden on people with mortgages and overdrafts.
l Home Center. Two months ago, I discovered that Home Center - Israel's largest do-it-yourself chain, with 40 stores and an annual NIS 1 billion turnover - is pulling the wool over our eyes big-time.
In all its advertisements, the chain stresses it provides objective advice. You enter the store, go up to one of the salespeople, and consult with him or her about which kind of paint to buy, which light bulb, which vacuum cleaner, and you are certain that you received the most objective professional advice. But no. They deceived you.
It turns out that some of the advisers are indeed Home Center employees, but some are employees of the suppliers. The latter are supposedly giving you "objective advice," but in reality, they push their employer's products. Some objectivity.
I passed this discovery on to Yitzhak Kimchi, the Industry and Trade Ministry official responsible for consumer protection, and he was stunned. "That's extremely upsetting," he said. "The buyer assumes that the advice is given by objective people, but if it's being given by interested parties - there's a dimension of deceit here."
Immediately afterward, Kimchi sent letters both to Home Center CEO David Bikovsky and to Yaki Vadmani, CEO of the Ace DIY chain, demanding that they post clear signs informing customers that advice is also given by suppliers' representatives, and ensure that consultants employed by suppliers wear name tags clearly identifying their employer.
Today, I'm happy to report a development: Representatives of both Home Center and Ace have pledged to have all employees of suppliers wear name tags that bear the name of both employee and supplier; they have also promised to post signs in the relevant departments informing customers that the advice is being given by the various suppliers. Ace even said it will require suppliers' representatives to wear a different shirt.
Now, the ball is in the customers' hands: Will they treat the advice they receive at the chains' stores with the skepticism it deserves?
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