Israel unable to produce sufficient amounts of new money

November 3, 2014

Quantitative easing - the right way again isra-bluff or Israel?

By: Uri Yaron
http://kalkala-amitit.blogspot.co.il/2014/11/blog-post_3.html?utm_source=feedburner&utm_medium=email&utm_campaign=Feed:+blogspot/tgrlJ+(הכלכלה+האמיתית) 

Is the intention of the Bank of Israel to carry out quantitative easing by buying government debt to print money, it is legal? Is it effective and how she is being? Here are the answers.

Two months ago I published a Facebook post titled "We got stuck in the wall." I argued in that post that the Israeli economy has reached a wall that blocks the ability to "roll cut" a few more steps forward. The ability to take huge mortgage debt decreased channel definition. Decreased amount of real estate investors as well. Channel inflating the real estate bubble debt instrument arrived exhausted. There is still crazy mortgages taken by quite a few civilians, but the ability to grow the mortgage quantity and scope halted and even showed a significant decrease.
Two months ago, the Governor of the Bank of Israel fired the last bullet left the gun interest. She lowered the interest rate to funny and even this level is insufficient and is not able to run with the Israeli local bank branch to the new loan. Loan amount in turn will create new money to the economy. Loan that would bring more oxygen to the economy faltering. The conclusion is clear and obvious conclusion is also understood by the heads of the Bank of Israel, is "stuck in the wall."

How the money Israel

In the modern world, including Israel all the money is created as debt while generating new loans by the banking system. This main channel and main manufacturing the existing monetary system money. Some economists despite attempts to disguise the fact that this amazing, proliferate in recent years, meaning many publications that explain the subject to anyone who is willing to open his mind, hear and understand.
This was explained by researcher Michael Komhuf IMF, it was explained again by the inventor of the term "quantitative easing", Professor Richard Warner, is explained by the Bank of England issued paper recently and it was reinforced last of his chief economic commentator of the newspaper leading economic Financial Times, Martin Wolf. These explained simply understood by any ordinary person how the system works. Therefore, there is a special problem to diagnose the economic situation for those who understand the workings of the monetary system. Manufacturing method of money as debt. Manufacturing method in which all the money depends on the ability of innocent citizens entering the institution called the Bank branch and get a small loan of one million, comes the moment when stuck in the wall.

Secondary channel

Under the existing monetary system under the Bank of Israel, there are two more silver production channels, secret channels are not explained clearly to the public:
The first channel is used a great deal since 2009, is a channel for purchasing foreign currency usually US dollars. This has been explained in two articles we have written in the past one of my one of my friend Boaz Hirsch . Therefore I shall not elaborate but the principle is simple to understand. Bank of Israel "bought" the new silver dollar was invented by pressing a button. To not develop a huge inflation the Bank of Israel absorbs the most money using two tools. One short-term deposits and other deposits OTO banking system. However, the Bank of Israel does not have to absorb all the funds and some remained in the new money. The consequences of this "trick" is attributed to two articles but the fact is that in this way the Bank of Israel's foreign new money to the Israeli economy.

Another way which was tested extensively in the Western world since the beginning of the monetary crisis and successfully, referred to as "quantitative easing."
At the beginning of 2009, several months after the collapse of the global monetary system, the Bank of Israel decided to act in an unusual way. State of Israel stood before the situation is not simple, was in danger of rising interest on state debts mode was soon leading her most difficult financial situation. To prevent and mitigate the possibility to the idea of ​​inflating the real estate bubble will gain momentum and will affect the state of the economy, the Governor decided to expand greatly the acquisition of the State of Israel bonds in the secondary market (not directly at the time of issuance). The Bank of Israel has held since 5% -2.4% tradable state duties. $ 16 billion ₪ average.
Since then, Israeli citizens have paid the Bank of Israel a total of approximately - 2.5 billion ₪ interest on bonds of the State of Israel controlled by the Bank of Israel.

Action was unusual and sparked a lot of questions when it was decided to. Israel passed a law forbidding non Printing Law on the Bank of Israel to lend money to the government of Israel at the request of the government. Unlawful practice that has brought the Israeli economy in the eighties culminating in a huge inflation to 400% inflation per year. Uncontrolled production of money, not backed by real GDP in the real economy, always produce inflation. This practice had to stop and he stops when the law was passed in the mid-eighties.
But is the purchase of bonds of the State of Israel by the Bank of Israel is not giving a loan to the Israeli government? Ask any port checks your local crime family, for those who must write a check funds listed on the check and you'll get one answer. Impression Czech Jack must check the money holder. point.

Can not cut corners or play word games in this case. Who holds the promissory note is given to the holder of the loan debt. The Bank of Israel holds bonds of the State of Israel in the amount of approximately - 12 billion loan ₪ actually gave the State of Israel and rudely broke the law. It is no wonder that the Bank of Israel has not taken such action since the law was passed to prevent printing. There, too, realized that such a step legislature intends dismissive. Such a move was made in an emergency situation as it was in 2009. Such a move would save emergencies and emergency such stands before us today.

The legal basis for the purchase of bonds (debt), the Government of Israel

Bank of Israel Law is very clear when it comes to granting loans Lmmslh.bhok Bank of Israel says:

"The bank will not give a loan to finance government expenditures, including through the purchase of bonds issued by the government at the time of issue." (Emphasis added).

No need to be interpreted. Prohibited the Bank of Israel to give loans to the government. Drafting the law, our friend, former Governor Fisher, Doug will have the option to "play" with the clear wording. Two words were written at the end of the ban to allow its local isra-bluff. The two words "when issuing" to allow its bond buying local intermediaries and even after days of issuance of the bonds. That is according to this version when performing quantitative easing from the exists a tacit agreement, where the Israeli government sells its bonds to third parties, particularly investment bodies of all sorts, and a scheduled then sell the debt to the Bank of Israel. sophistry that does not change the nature and intention of the legislature. prohibited the Bank of Israel and the Israeli government to give loans. Currently, the Bank of Israel from 2009 through roughly the intent of the law.

Quantitative easing by the Bank of Israel - kosher but stinking?
Pictured: Bank of Israel Governor Dr. cornea Flug

So what are the possible actions of the Bank of Israel?

The money is used in the modern human body blood. Lack of money produces severe side economics. Adjusting the money supply to economic activity is the heart of the monetary system. Is the ultimate goal of all responsible for the existence of Israel today Hsita.ncon it is the Bank of Israel. The problem is that under the principles of the existing system has one main channel for the production of new funds, lending channel of distribution to the public and there are two additional channels that can give a temporary and limited solution. One of them is contrary to the laws of the State of Isral.cdi clarify the subject turned to the Bank of Israel's Media Relations Spokesperson .tsovt Bank of Israel consisted of what was said last interest rate decision.

"As announced by the Bank of Israel interest rate announcement dated 27/10/2014," Bank of Israel will use the tools available, and will consider the need to use different tools to achieve its goals. "

The answer included a reference concentration FAQ issued by the Bank of Israel after the purchase of bonds of the State of Israel in 2009. In this document, reference to the question whether this is not breaking the law, the Bank of Israel meets the following answer.

- Is not this activity financing of government spending, does not pass the bank on "Law not print"?
- The answer is no. Government expenditure financed by the Bank of Israel is forbidden by the amendment to section 45A of the Bank of Israel, known as the "law of non-printing", obtained as part of the stabilization of the economy in 1985 after many years of annual inflation at around 100 percent or more. Intent of the law was to prevent a situation where the government decision and initiative required the Bank of Israel to finance current expenditures. This law is strictly maintained by the government and the Bank of Israel. New activity of the Bank of Israel is the purchase of government bonds exist at the initiative of the Bank of Israel and at the sole discretion as part of the monetary measures designed to reduce the cost of credit in the economy and therefore this activity is not contrary to the "law of non-printing".

In his reply, the Bank of Israel says he is not breaking the law because he bought the bonds in the secondary market as if it change the fact that he holds the obligations of the State of Israel. The Bank of Israel belongs to Israel and Israeli citizens. Because of this, the idea that the citizens of the state will pay to the Bank of Israel interest State debt is absurd.

So what is the solution. How to make it over the wall to safety, the welfare of all citizens

First you should go back to the main facts of the story.
1. Israel's economy faced a crisis because of the inability to produce sufficient amounts of new money
2. The Bank of Israel can make the legal tender nowadays called "money" out of thin air at the touch of a button, under the limit of the inflation target.
3. The State of Israel is in a difficult financial situation and severe housing crisis poses the danger of social survival ability.
4. The Bank of Israel is more suggested that he would launch a program producing money out of thin air called "quantitative easing" was created in response to the main problem, a lack of new money.

The solution is crystal clear. Bank of Israel may and must perform his duties and produce the missing money in the Israeli economy.
According to the Bank of Israel is not prohibited from delivering money to the Israeli government. The prohibition applies to issue loans to the government of Israel did not deliver funds to the government of Israel. What prevents the Bank of Israel to hand over the money needed per the Government of Israel so that it will spread the money economy. The law does not forbid it.
Bank of Israel must by law meet the inflation target ( target erosion remember ). Bank of Israel intends to inject new money to the economy by buying bonds of the State of Israel. Why the Bank of Israel may not transfer those funds directly to the Ministry of Finance without debt? It will be possible to paint the fiscal agreement with the Ministry of Finance and the government so that they would be destined for beneficial purposes. For example, all public construction residential project newly established. For example, as an alternative to reduce taxes on income and leaving more money available to the citizens. For instance, by deleting the state debt held by the Bank of Israel, or at least deleting the cost of debt, interest. For example, by making full conclusions of the Commission to cancel the poverty and you'd think for more ideas. Instead of a loan production country to country. Simple, clear and easy to carry.

All apprehensive about inflation should come back. There is a problem of a lack of legal tender money. Bank of Israel can, may and should make the necessary adjustments. He says openly do what is necessary as permitted by law while keeping inflation target.
This proposal does not prejudice the independence of the Bank. She does not rule out the goals, keeping inflation target objective. This primary objective and should ensure its implementation. But if bank leaders think to inject new money to the economy they need to do this operation for the benefit of all citizens through the government and debt-free. That way, just not too complicated formulations.
The government will spread the money supply and thus be examined. But the excuse "I needed money to" leave this world.