2/21/2008

The All-imaginary Dollar

Bluke, and many in his wake, have been talking about the effects of the dollar's plunge in the community, even noting the absurd scenario where the gedolim paskened that the dollar is worth 4 NIS.

Usually, I'm not the last to pile on the haredi community. Here, though, it's a bit more complicated, and this type of thinking is not exclusive to the haredi community. Take, for example, the real estate market. For decades, real estate - both purchase and rental - has been bought and sold in US dollars (not officially, of course, since that's illegal, but at every step of the way until the signing the contract). Thus, in my neighborhood in Modiin, people are selling houses, quoting a certain dollar figure, but then insisting that, in NIS, the price would be 4.1 x the $ price. In other words, the dollar is worth 4.1 shekel to them. I asked a real estate broker what would happen if I wanted to pay in actual dollars. Would the seller then say no, because my $410,000 in cold, hard, cash is really only worth about $360,000? The agent was stumped.
The issue seems to be that Israelis - across the board - got into a habit of thinking about NIS in dollar terms.
There are several causes: the ingrained fear of inflation (because you never know when the gov't will begin spending recklessly again), the basic instability of a small, unlinked currency, the fact that so much of Israel is neck-deep in imports and exports (as one would expect from a country with a dearth of natural resources but a wealth of human resources), the fact that much of what Israel buys and sells (oil, diamonds, NASDAQ shares, real estate) is traded in $, the fact that Israel has massive amounts of $ income (in the form of foreign aid, tzedaka, organizational spending, tourism, yeshiva and seminary tuitions, and business transactions), and since the value of the NIS vis-a-vis the $ has been extremely stable since Netanyahu's PM-ship (look it up; I'm not making gratuitous political statements), people simply took for granted that, aside from temporary blips, the shekel would remain between 4 and 4.5 to the dollar. Thus, the average Yossi treats the situation as being anomalous, imagining the dollar to still be worth 4 or 4.1 NIS.

Though I might know a bit more than Average Yossi about economics, there are still a few things I do not understand. I am waiting to see the price of American products- or anything else imported in $ -drop, but they have not. As far as I know, the weak dollar has not been accompanied by high inflation in the States, so prices should remain stable. I would expect that as the dollar falls, American products get cheaper. Also, over the past few months, the dollar has dropped but the price of crude has remained relatively stable. Since crude is traded in dollars, this means that, the price of crude in NIS has actually dropped. Yet, the price at the pump has gone UP. Why? Does it take time for the price at the pump to reflect the price of oil? It certainly doesn't take too long for the price at the pump to rise when crude goes up.
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