Fool’s Gold: Throwing Away Good Money By Investing in Israel
Israel receives the largest chunk of US foreign aid of any country in the world, but there seems to be no comprehensive accounting of how much money flows to the Jewish state that piggybacks, or ties “indirectly,” into this federal aid—such as investment in Israeli bonds by individual states. Recently a bill was introduced into the Colorado State Senate calling upon that state’s treasurer to invest in Israeli debt obligations. The issue has caught the attention of the Boycott Divestment Sanctions movement’s Colorado organization, which addresses it here, as well as Charles E Carlson, of We Hold These Truths, whose letter to the Colorado Senate Finance Committee I reproduce below.
Also, for those interested, you can see the bill’s full text here, along with a list of its sponsors in both the Colorado Senate as well as the state’s House of Representatives. Between both houses of the legislature, a total of 30 elected officials have now signed onto the measure (so far). Which of course raises the question: how many of these people hold dual citizenship in both the US and Israel? It also prompts us to ask: is it not now time we had a law prohibiting dual nationals from serving in legislative bodies in the United States—certainly at the federal, but even at state levels as well? Would the passage of such a law be “anti-Semitic”? Or would it simply be a prudent act of national self defense? In his letter below, Carlson makes some excellent points about the plain, downright foolhardiness of investing in a country like Israel.
Dear Members of Colorado Senate Finance Committee and Others:
In response to: SB 13-176, a bill to “authorize the State Treasurer to invest State’s money in debt obligation backed by the full faith and credit of the State of Israel. This paper is to inform Legislators of the inherent risk of investing in foreign currencies and the long term sinking value of Israel’s currencies, which do not seem to be well known and purposely difficult to obtain, but which are historical facts. Such records are blacked out and unavailable from Israel’s Central Bank, which only provides the latest years data. The Federal Reserve Bank of New York does not offer any historic quotes on the Shekel, though it covers most major currencies.
The New Shekel (NIS) was adopted in 1985, as the third currency in Israel’s 66 year history, and its exchange rate was then 1.5 NIS to one US Dollar, from whence it declined to where today 3.68 NIS are needed to buy one US Dollar. This would mean a 59.2% decline in value. From 2003 to 2008 the Shekel actually appreciated briefly in terms of US dollars, recovering about 15% of its decline since 1985. Not withstanding, a New Shekel bond bought for $1000.00 in 1985 would fetch only $590.00 today. (Note 1)
Mechanics of Devaluation
All Colorado permitted investments are dollar delineated for very good reason. (see 24-36-113. Investment of state moneys – limitations) To buy Israel issued bonds the State of Colorado must effectively convert its dollars to Shekels, Israel does not and cannot sell dollar bonds. The present Colorado statues do not authorize a single investment repayable in a foreign currency, and the US Constitution does not allow any State to use another currency except the US Dollar. Foreign currency denominated instruments are open to currency fluctuation and devaluation risk. Interest and principal payments on Israeli bond investment is then paid in Shekels, which must be converted back to dollars before the State can pay bills. Therefore, it is clear if the value of the Shekel declines, as it has done most of Israel’s history, the State would have less dollars to spend.
Foreign currencies are inherently dangerous because devaluation is a political decision. To illustrate, some Coloradans have lost money in Mexican Bank Peso accounts that pay, or used to pay, high interest rates, but have devalued several times, drastically diluting both principal and interest. There is no guaranty against devaluations because it is done in the dark of night by political edict, which is necessarily a secret. The “Full Faith and Credit of Israel” means only that the State of Colorado will get back the same number of Shekels that it invested, but there is no telling how many dollars those Shekels will convert back into. In the past it has usually been less than the amount invested.
In fact, in its short life Israel has devalued its currency many times. Its policy until 2000 allowed constant devaluation. I quote from Historical Exchange Rates of Asian Countries* “Up till now, Israel still maintained a crawling exchange band, where the upper limit depreciates at a rate of 6% per year, the lower limit depreciates at a rate of 2% per year, and the width of band at the end of 1999 was about 44.5%. ” (note 1)
About eighty separate incidents of Israel currency devaluation and downward “adjustment” were found between 1967 and 2000. (note 1)
To illustrate the impact of devaluation, be it a creeping one, or sudden, let us look at Venezuela that devalued its Bolívar by 32% in February, 2013. Procter & Gamble Company, which does business there, immediately announced to shareholders a currency exchange loss of between $200 million - $275 million. Every American holder of Venezuela bonds has also lost about 1/3 of their capital. Keep in mind, Venezuela is not a third world State, it is a major oil producer and trading partner with the USA, but this did not stop it from devaluing.
Countries devalue their currencies in order to gain trading advantage over other countries. A nation need not be insolvent to devalue. Some businessmen in Israel now want even greater devaluation to make vacationing there more competitive with Southern Europe and Israeli goods cheaper in the world market. At the present time Spain, Italy, Greece, Ireland, and even France are also candidates for devaluation. London Financial Times, Feb 21, 2013, wrote: “loose monetary policy adopted by major central banks around the world could spill over into a series of competitive devaluations.
Conclusion: The future for Shekel bonds can not be known by this writer, nor by the Treasurer of Colorado. Past statutes seem to take for granted that State of Colorado Treasurer has no business taking a currency speculation risk with taxpayer money. Devaluation risk is all the reason that is needed to trash SB 13-176. The legislature should not invite the Treasurer to take unusual risks with State funds by approving investment in any foreign currency, especially not one with a history of multiple devaluations.
Additional possible risk of USA disinvestment: While not necessary to the argument of excess risk of Shekel investment, it is noteworthy that there are growing political, religious, and humanitarian movements afoot to compel the US Congress to curtail aid for Israel’s military establishment. If the US Government were to discontinue military aid to Israel, as it is being increasingly pressured to do, it can be reasonably expected that Israel would have no choice but massive devaluation in order to pay for its military establishment, the largest and most expensive in the Middle East. The likelihood of this happening can not be calculated, but the Legislature should be aware of it.
Past Shekel weakness is largely attributed to Israel’s disproportionately large military budget. The cost of “The 1967 War” and other wars appears to have forced Israel to abandon the I-Pound as its currency. I call the legislature’s attention to one such movement that could have sudden and dramatic negative impact on Israel’s monetary policy.
Fifteen Protestant and Catholic church leaders, having more than 25 million members combined, have formally asked the US Congress for what amounts to sanctions against Israel. They state in part:
“We have also witnessed widespread Israeli human rights violations committed against Palestinians, including killing of civilians, home demolitions and forced displacement, and restrictions on Palestinian movement, among others. We recognize that each party—Israeli and Palestinian—bears responsibilities for its actions and we therefore continue to stand against all violence regardless of its source. Our stand against violence is complemented by our commitment to the rights of all Israelis, as well as all Palestinians, to live in peace and security.”
“We request, therefore, that Congress hold Israel accountable to these standards by making the disbursement of U.S. military assistance to Israel contingent on the Israeli government’s compliance with applicable U.S. laws and policies. As Israel is the single largest recipient of U.S. foreign aid since World War II, it is especially critical for Israel to comply with the specific U.S. laws that regulate the use of U.S.-supplied weapons. We also encourage Congress to support inclusive, comprehensive, and robust regional diplomacy to secure a just and lasting peace that will benefit Israelis, Palestinians, and all the peoples of the region, and the world.”
I will be on hand at the Finance Committee hearing to raise this issue and answer questions.
Yours very truly,
Charles E. Carlson
1) Historical Exchange Rate Regime of Asian Countries
Major sources of reference include:
World Currency Yearbook (WCY), IMF Annual Report on Exchange Arrangement and Exchange Restriction (IMF), Bufman G. and L. Leiderman. 2001. Surprises on Israel’s Road to Exchange Rate Flexibility (Bufman)
2) From London Financial Times, Feb 21, 2013: “loose monetary policy adopted by major central banks around the world could spill over into a series of competitive devaluations.”http://www.ft.com/intl/indepth/currency-wars
3) Churches Call For Congressional Investigation Into Aid To Israel
4) JVP Rabbinical Council stands with churches challenging US aid to Israel: http://mondoweiss.net/2012/10/jvp-rabbinical-council-stands-with-churches-challenging-us-aid-to-israel.html
5)The Bill text:
About Charles E. Carlson:
Charles E. (Chuck) Carlson is a pro-peace activist who, with others, organized We Hold These Truths in 1996, and phased out his business interests soon thereafter. A renewed whtt.org website is under construction. See Living With Failure, Milestones, and Project Strait Gate. View all posts by Charles E. Carlson →
The letter to Congress from which Carlson quotes—written by 15 US church leaders—calls for a “reevaluation” of US aid to Israel, along with a Congressional investigation into how Israel has used our money, and whether or not US laws have been violated. The letter was released in October of last year. I did a post on it at the time, but since the issue grows increasingly pertinent, I will reproduce the letter below in its entirety. You can also access it here.
Dear Member of Congress,
We write to you as Christian leaders representing U.S. churches and religious organizations committed to seeking a just peace for Israelis and Palestinians. Our organizations have been deeply involved in this pursuit for decades, inspired by the call and promise of Jesus Christ who said, “Blessed are the peacemakers, for they will be called children of God.”
In response to our Christian call to be peacemakers, we have worked for decades to support both Israelis and Palestinians in their desire to live in peace and well-being. We have worked alongside our Palestinian Christian sisters and brothers to help build a peaceful and resilient Palestinian civil society by supporting hospitals, schools, clinics, and social service agencies. These ministries include cooperative efforts with Israelis and Palestinians as well as with Jews, Muslims, and other neighbors here in the United States. Through our presence in the region, and regular visits to our partners there, we see first-hand the impacts of the conflict on both Palestinians and Israelis and hear from them directly about the reality of their lives.
Through this direct experience we have witnessed the pain and suffering of Israelis as a result of Palestinian actions and of Palestinians as a result of Israeli actions. In addition to the horror and loss of life from rocket attacks from Gaza and past suicide bombings, we have witnessed the broad impact that a sense of insecurity and fear has had on Israeli society. We have also witnessed widespread Israeli human rights violations committed against Palestinians, including killing of civilians, home demolitions and forced displacement, and restrictions on Palestinian movement, among others. We recognize that each party—Israeli and Palestinian—bears responsibilities for its actions and we therefore continue to stand against all violence regardless of its source. Our stand against violence is complemented by our commitment to the rights of all Israelis, as well as all Palestinians, to live in peace and security.
It is this experience and these commitments that lead us to write to you today to express our grave concern about the deteriorating conditions in Israel and the occupied Palestinian territories which threaten to lead the region further away from the realization of a just peace.
Unfortunately, unconditional U.S. military assistance to Israel has contributed to this deterioration, sustaining the conflict and undermining the long-term security interests of both Israelis and Palestinians. This is made clear in the most recent 2011 State Department Country Report on Human Rights Practices covering Israel and the Occupied Territories (1), which details widespread Israeli human rights violations committed against Palestinian civilians, many of which involve the misuse of U.S.-supplied weapons.
Accordingly, we urge an immediate investigation into possible violations by Israel of the U.S. Foreign Assistance Act and the U.S. Arms Export Control Act which respectively prohibit assistance to any country which engages in a consistent pattern of human rights violations and limit the use of U.S. weapons (2) to “internal security” or “legitimate self-defense.” (3) More broadly, we urge Congress to undertake careful scrutiny to ensure that our aid is not supporting actions by the government of Israel that undermine prospects for peace. We urge Congress to hold hearings to examine Israel’s compliance, and we request regular reporting on compliance and the withholding of military aid for non-compliance.
Examples of specific, systematic human rights violations related to U.S. military support are included as an annex to this letter.
In addition to specific rights violations, we see a troubling and consistent pattern of disregard by the government of Israel for U.S. policies that support a just and lasting peace. Specifically, repeated demands by the U.S. government that Israel halt all settlement activity have been ignored. Since 1967, every U.S. administration has decried Israeli settlements in the occupied Palestinian territories as obstacles to peace. Despite this stance, Israel continues to expand its settlements in the West Bank and East Jerusalem, claiming territory that under international law and U.S. policy should belong to a future Palestinian state. The Oslo peace process, which began in 1993, was publicly promoted as leading Israelis and Palestinians to a just peace based on a two-state solution. Instead, since 1993, the number of Israeli settlers in the West Bank, including East Jerusalem, has more than doubled. Rights violations resulting from Israeli settlement activity include separate and unequal legal systems for Palestinians and settlers, confiscation of Palestinian land and natural resources for the benefit of settlers, and violence by settlers against Palestinians.
According to the Israeli human rights group B'Tselem and the UN Office for the Coordination of Humanitarian Affairs, there has been a dramatic rise in settler attacks against Palestinians this year (4). They report that these attacks are often intended to drive Palestinians from areas the settlers wish to take over, and that Israeli authorities have failed to take significant action to stop the violence or hold the perpetrators accountable. We believe that these actions directly undermine peace efforts and threaten, rather than support, Israel’s long-term security interests.
We want to be clear that we recognize that Israel faces real security threats and that it has both a right and a duty to protect both the state and its citizens. However, the measures that it uses to protect itself and its citizens, as in the case with any other nation, must conform to international humanitarian and human rights law.
As Christian leaders in the United States, it is our moral responsibility to question the continuation of unconditional U.S. financial assistance to the government of Israel. Realizing a just and lasting peace will require this accountability, as continued U.S. military assistance to Israel — offered without conditions or accountability — will only serve to sustain the status quo and Israel’s military occupation of the Palestinian territories.
We request, therefore, that Congress hold Israel accountable to these standards by making the disbursement of U.S. military assistance to Israel contingent on the Israeli government’s compliance with applicable U.S. laws and policies. As Israel is the single largest recipient of U.S. foreign aid since World War II, it is especially critical for Israel to comply with the specific U.S. laws that regulate the use of U.S.-supplied weapons. We also encourage Congress to support inclusive, comprehensive, and robust regional diplomacy to secure a just and lasting peace that will benefit Israelis, Palestinians, and all the peoples of the region, and the world.
With respect and gratitude, we offer you our prayers.
Rev. Gradye Parsons
Stated Clerk of the General Assembly
Presbyterian Church (USA)
Mark S. Hanson
Evangelical Lutheran Church in America
Bishop Rosemarie Wenner
President, Council of Bishops
United Methodist Church
Transitional General Secretary
National Council of Churches USA
American Friends Service Committee
J Ron Byler
Mennonite Central Committee U.S.
North American Secretary
Orthodox Peace Fellowship
Friends Committee on National Legislation
Dr. A. Roy Medley
American Baptist Churches, U.S.A.
Rev. Geoffrey A. Black
General Minister and President
United Church of Christ
Rev. Dr. Sharon E. Watkins
General Minister and President
Christian Church (Disciples of Christ)
Rev. Julia Brown Karimu
President, Christian Church (Disciples of Christ), Division of Overseas Ministries
Co-Executive, Global Ministries (UCC and Disciples)
Rev. Dr. James A. Moos
Executive Minister, United Church of Christ, Wider Church Ministries
Co-Executive, Global Ministries (UCC and Disciples)
Maryknoll Office for Global Concerns
Eli S. McCarthy, PhD
Justice and Peace Director
Conference of Major Superiors of Men (CMSM)
Examples of specific, systematic human rights violations related to U.S. military support:
• Killings of civilians - At least 2,969 Palestinian civilians uninvolved in hostilities were killed by the Israeli military between December 29, 2000 and December 31, 2009. This includes at least 1,128 children under the age of 18.5 Many of these deaths are connected to weaponry the U.S. underwrites.
• Suppression of legitimate political expression and protest – U.S.-supplied tear gas has been used by Israel to systematically suppress political protests and dissent in the occupied Palestinian territories. This has led to the deaths of at least 5 Palestinians and the grave injury of many others, including two U.S. citizens.
• Home demolitions and forced displacement – According to the Israeli Committee Against House Demolitions, approximately 24,813 Palestinian homes in the occupied Palestinian territories have been destroyed since 1967. House demolitions in the West Bank in 2011 forcibly displaced nearly 1,100 Palestinians (over half of them children) from their homes, over 80% more than in 2010, according to the United Nations (UN) Office of the Coordination of Humanitarian Affairs (6).
• Use of prohibited weaponry in densely populated civilian areas – Israel has used both white phosphorus and flechette shells in Gaza and Lebanon in violation of international humanitarian law. During operation cast lead white phosphorus shells were fired against civilian targets including a UN compound, two hospitals, and private residences causing civilian deaths and injuries. Flechette shells have also been used repeatedly in Gaza since 2001, causing significant civilian deaths and casualties (7).
• Restricting Palestinian movement - Israeli-only roads and more than 500 roadblocks and checkpoints carve up the West Bank, making travel for Palestinians arduously slow or impossible (8). The Wall constructed by Israel in the West Bank deviates considerably from the 1967 lines, confiscating occupied Palestinian territory and water in the process, and severely restricting Palestinian movement. Since 2007 Israel has also maintained a comprehensive blockade on Gaza, restricting not only the movement of Palestinians into and out of Gaza, but also restricting the import and export of goods. The UN and International Committee of the Red Cross have both concluded that this blockade amounts to collective punishment (9), in contravention of the Fourth Geneva Convention.
2 Weapons in this instance include “crowd control” items such as tear gas. The Consolidated Appropriations Act, 2012 (P.L. 112-74) which is included in the US Foreign Military Financing regulations stipulates that “not later than 90 days after enactment of this act and 6 months thereafter, the Secretary of State shall submit a report to the Committees on Appropriations detailing any crowd control items, including tear gas, made available with appropriated funds or through export licenses to foreign security forces that the Secretary of State has credible information have repeatedly used excessive force to repress peaceful, lawful, and organized dissent.”
3 While this letter focuses on US-Israel relations and the Israel-Palestine conflict, these are laws that we believe should be enforced in all instances regardless of location. All allegations regarding the misuse of US supplied arms should be investigated.
4 http://www.mcclatchydc.com/2012/07/11/v-print/155813/report-violence-against-palestinians.html For more information see also: http://www.haaretz.com/news/diplomacy-defense/lambs-to-the-settlers-slaughter-screaming-and-unheard.premium-1.455937
5 Details available at http://www.weaponstoisrael.org/article.php?id=2940 and through original date from B’Tselem at www.btselem.org/statistics.