Funny how banking was one of the most desired of sectors that Israeli workers wanted to gain employment in. That may be a thing of the past. According to Globes: “Banks include their salary costs in the “human capital” item of their financial reports, which is no wonder considering the extensive capital involved in running them. The aggregate salary cost in the banking system reached NIS 15.2 billion in 2008, and bank employees are traditionally among the best paid workers in the economy. The financial reports explain why.

An examination by “Globes” found, that after five years of continuous growth in the average salary cost at the banks, it actually declined in 2008. The average salary cost of the 48,761 banking system employees was NIS 25,400 last year, down from NIS 26,700 in 2007, not including privatization bonuses and severance packages. The reason for the 5% drop was because most banks did not pay bonuses for 2008 performance.”

With banking and hi-tech showing cuts in pay, what will become the new sector that is desired?

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With Israeli interest rates near zero, it appears that local consumers are moving money out of deposit accounts into non-interest bearing checking accounts, thus creating the beginnings of a liquidity trap. According to a Globes report: “Bank of Israel officials now note that a liquidity trap has developed. The minutes state, “Despite the fact that the Bank of Israel’s interest rate is still positive, the interest the banks pay depositors is close to zero, and they have little room to reduce it further. In this situation, in order to preserve the interest rate spread (also known as banking spread), the transmission mechanism from a reduction in the Bank of Israel interest rate and the rate charged to borrowers is weakened. “In these circumstances, there could be a switch from time deposits to current-account deposits, which would make it more difficult for banks to manage liquidity and to balance deposits and loans to different terms. The public may also switch from bank deposits into other assets that could create an undesirable increase in risk for savers in the financial system.”

Now what? I say forget about interest rates. They are low enough. Fischer needs to get on the Benjamin Netanyahu bandwagon and start calling for lower taxes, and privatization. Want to see huge amounts of private investment. Privatize the land authority and watch the Israeli economy take off. The answer is to incentivize people to take risk, not to encourage them to stick money in the bank at 0.25%. No wealth or economic growth will come from that.

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With no real clarity as to who will be the next Israeli prime minister, an editorial in the business daily Globes, says that regardless of who forms the new government, that person should ask Bank of Israel head Stanley Fischer for help forming economic policy. I must admit that I think that Globes is an excellent paper, but this op-ed left me scratching my head.

The author writes, ” The answer to all these lies in the plan each candidate for the premiership has for dealing with the economic crisis, assuming they have such plans. One can assume that in the case of both Livni and Netanyahu, the main plan is to ask Governor of the Bank of Israel Stanley Fischer what to do. What they will hear is what the governor has been saying for weeks: fiscal expansion is possible only as a temporary measure; the non-bank credit market must be expanded; the financial system must be strengthened.”

‘assuming they have such plans”… what on earth is he talking about. Netanyahu has a detailed economic plan. Remember; lower corporate taxes, lower income taxes… targeted fiscal stimulus and privatization. You would think that a writer for a business paper would know that.

The other issue that I have is that BOI head is considered the end all of economists. I know that Israeli politicians never bothered asking during his confirmation hearings, but his policies led to the Asian crisis back in ‘98, which then spread to Russia, Latin America. He was the head of the IMF. As we have mentioned here many times, Fischer was late in understanding that Israel was quickly sinking into an economic slowdown.

i think it’s time that we stop putting Fischer on some kind of economic pedestal. Maybe we should take a look at his record, especially, as the Globes author wishes for, Fischer is going to set Israeli economic policy?

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With country after country announcing ’stimulus’ plans to help supposedly create jobs and jump start the economy, it appears that there is just one leader who is sticking to capitalism. with today being election day in Israel, PM wannabe Benjamin Netanyahu has outlined his economic plan which instead of calling for more spending than the country can afford, he is calling for massive tax cuts and privatization.

With the US plan calling for more than $800 billion in spending in order to create and save jobs, it’s hard to imagine that there isn’t a better approach to try and jump start the economy. After all Prez. Obama says the program will help create/save 4 million jobs. Well at $800 billion, we are talking about spending more than $200,000 to create 1 job. That’s insane. It would be cheaper to just write each company a check for $60,000, and force them to hire 1 person.

If Netanyahu wins today’s election and sticks to his campaign promise of lower taxes, it will be interesting to see how the Israeli economy reacts compared to most other countries that have chose higher spending to try and solve their problem.

After all why after a global economic slowdown we have universally bailed on capitalism is beyond. Netanyahu has an interesting point on this same topic reported in Marketwatch: “Netanyahu therefore harshly opposes the emerging global trend of legislating expensive stimulus plans. “The fact that around the world budgets are being breached doesn’t mean we should become captive to this Keynesian concept,” he told the Marker, the Ha’aretz daily’s business-news division. His recipe is to resist new spending so as to immediately introduce an ambitious tax cut. If we send the cash to the people, he says, they’ll do a better job deciding how to spend that newly available income than the bureaucrats would.”

If he wins it will be an interesting next few years to actually compare how different economic philosophies play out during a  crisis.

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