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September 23, 2014 / 28 Elul, 5774
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What if Israel Were on the Gold Standard?

We would see a massive transfer of wealth away from the banks and the government and the stock market and real estate which will all crash and back to the wage earning middle class who would then be earning gold.

investing-in-gold_4548807_lrg

So we see that every time money is printed:

  1. The ones who receive it first are the ones who benefit the most;
  2. The ones who receive it first also become entirely dependent on it; and
  3. The ones who receive it last suffer inflation and a rising cost of living.

And we see that every time I stop printing money:

  1. Those who were receiving it first, suffer the most; and
  2. Everyone else benefits from deflation and a falling cost of living.

What happens in reality?

But this is not exactly how it happens in reality. The institution in charge of printing shekels, the Bank of Israel headed by Stanley Fischer, does not “stimulate the automobile industry.” No no. That’s not his job, at least not directly. When Fischer expands the money supply, he buys none other than government bonds with printed money and stimulates the government. The government is always the first to get the new money.

The government then puts most of the money into the banking system, and uses a small tiny percentage of it to hire more government ministers in order to satisfy coalition partners, give raises to government workers in order to keep up with consumer prices (because God forbid a Knesset Member should suffer the ravages of inflation), cave in to unions like the Histadrut when they threaten a general strike which gives them even more power to shut the country down in future spats, and pass out more welfare to the four corners of the Earth to get more voters. So the first ones to receive new money from Fischer are:

  1. The government and its workers; and
  2. The banks.

Who is the next in line? After buying votes and coalition stability with printed money, the banks then take most of the money and invest it in the stock market and mortgage loans. So the next in line are:

  1. The stock market; and
  2. The real estate market.

As the real estate market rises, so do rent prices, not only on the middle class wage earner who is always last to get the new printed money, but on other renters like Supersol and Rami Levy, so your food bill goes up, too. Meanwhile the government and the banks expand blissfully, and the stock market goes up, but you don’t have enough money to invest there because, with inflation and rent and food going up, you are going into debt. To the banks of course.

And so it goes, that every time the Bank of Israel prints money, the government and the banks and the land owning tycoons get richer and the middle class gets poorer. The wealth transfer from middle class to rich is a necessary part of this process. Why? Because if, for example, the Bank of Israel wants to raise the money supply by 5% and instead of giving the money to the government and the banks, it simply adds 5% to all of our bank accounts overnight, the prices of everything would go up 5% in a day or two and the Bank of Israel would have accomplished nothing but stark and immediate price inflation. The trick is to give it to one group and its buddies, being the government and the banks first. That way it takes time for inflation to affect prices and people don’t even realize they’re getting poorer, or if they do, why it’s even happening.

In order for it to work, the inflation it has to be slow and insidious so people don’t even realize what’s going on. It has to take place over years and decades, so suddenly 50 years pass and people wonder why it now takes 2 salaries and 30 years to pay down a mortgage instead of 20 years and 1 salary, like it did 50 years ago. And then innocent people led by ignorant populists like Daphne Leif suddenly go out in the streets and protest, but they don’t know what to demand in order to fix it. Just that the government “do something,” like print money and hand it out or something.

About the Author: Rafi Farber blogs at SettlersofSamaria.org.


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4 Responses to “What if Israel Were on the Gold Standard?”

  1. Samuel Ramos says:

    Israel must stay away from the Gold Standard….too much vulnerabliity to currency manipulations by the larger Sovereign Powers!

  2. Samuel Ramos says:

    Israel must stay away from the Gold Standard….too much vulnerabliity to currency manipulations by the larger Sovereign Powers!

  3. The Jerusalem Institute of Market Studies, Boris Karpa, and the Libertarian/Free Market crowd in Israel would be ideal for working on such a proposal.

  4. Rafi Farber says:

    I have a better way. Elect a PM that wants to do it. We only need 62 men. One head of the BoI, and 61 knesset members to destroy the unions and the minimum wage and slash the budget like there's no tomorrow.

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