The US House of Representatives, which houses 435 members, was still in Democratic control as of midnight Friday. Barring a last-minute change, he is scheduled to approve today, Friday, a bill for a massive $1.7 trillion budget increase to address new expenses that have sprung up for the current budget year, which began just three months ago in October.
The budget increase of 5% for civilian expenses and another 8% addition to the American defense budget came to meet the civilian agenda of President Joe Biden and the Democratic Party (increasing the defense budget according to the view of both parties together).
The Senate, which is controlled by the Democrats and houses 100 senators, already approved last week, by a majority of 68 senators against 29, the bill to increase the budget, and the urgent approval today is required before the composition of the House of Representatives changes next week in favor of the Republican majority.
The new budget, which has already been approved by the Senate, includes $772.5 billion in civilian spending and another $858 billion in additional defense spending. The budget also contains $44.9 billion in funding for military support to Ukraine, including economic and humanitarian aid.
The budget was approved one day after Biden’s meeting in Washington with Ukrainian President Volodymyr Zelensky, who delivered a speech to the US Congress. Another 40 billion dollars to the American security budget, beyond the military and civilian aid to Ukraine, is intended to renew the ammunition stocks of the American army, which also supplies equipment for Ukraine and the US allies in NATO.
A bill also includes additional help for students, the disabled, the homeless or the homeless, including military veterans, for the protection of workers’ rights and for in-plant professional training. The new budget also includes protection for victims of local violence.
The bill includes infrastructure budgets as well as massive help from the US government to establish advanced memory chip factories to reduce dependence on such an important component of a developed modern economy, including military applications.
This budgetary expansion of the US within the framework of the intensifying war between the US and Russia (not directly, but on the 40 degrees East longitude, the border between Ukraine and Russia), should remind us of the Korean War that broke out in 1950 and ended in 1953 with the determination of the border at the 38 degrees latitude north. The beginning of the war between the blocs is minimal, but it is getting stronger, and the huge budgets that are pouring out are getting bigger.
More but painful
Please note: the US budget deficit may increase this year due to the economic slowdown and even the fear of a recession later in the budget year. Already in November, the budget deficit increased by 30% compared to the corresponding month last year. The Congressional Budget Committee expects two years of an average deficit of 3 trillion dollars per year Before the new approval to increase the budget.
The deficit in the budget base in the current fiscal year 2023 is supposed to be 3.7%, and there are estimates for a larger deficit also against the background of the emerging economic slowdown. The result: the increase in the budget deficit will oblige the Fed to continue raising interest rates to suppress inflation.
The Fed predicts that in a year the interest rate will average 5.1%. But against the background of the increase in federal government spending, which will be approved today, the process of raising the interest rate may take longer, and it will climb higher and be more painful.
The higher than expected interest rate increase in 2023 will lead to interest rate increases all over the world and in Israel – which does not bode well for the world’s capital market after the huge losses for savers and investors in the outgoing fiscal year.
The world’s investing public has lost and continues to lose trillions of dollars this year from its savings and investments in the capital market, as well as heavy losses in the stock market which plunged in 2022, severe losses in the global bond market, including the government bond market and the crash and drop in the value of crypto assets that blackened this investment channel as well Because of scams.
To these we will add the latest damage following the rise in interest rates and the price of capital and the collapse of house and apartment prices in most of the Western world, especially where the bond yield curve has inverted. Even the most cautious, defensive, whose money was in checking accounts or in short-term deposits bearing very low interest, lost a lot of money Through the hidden taxation of governments in the world, called “inflation”, it has pervaded all markets.
In the coming year, global average inflation rose to 8.8% after 4.7% in 2021 and will continue to erode assets at a rate of 6.5% in 2023, with another global price increase of 4.1% expected in 2024. In four years, the world’s cash-holding public has lost a fifth of its money .
This is a tremendous crisis that has no cure and balm in the coming years. Mainly affected are the poor in countries, such as Argentina and Turkey, where inflation is between 84%-92% respectively, as well as the poor in the other countries who do not have the tools to deal with the erosion of their capital or, alternatively, to raise their wages.
The public in the world and in Israel hopes that the light is just around the corner, but the war in Ukraine continues, and its security budgets and those of the invading Russia are on the rise. The defense budgets of the European countries have also increased sharply, so much so that French President Emmanuel Macron is calling on the European countries to invest even more in the defense industry, as it is no longer possible to rely only on the NATO alliance.
The Germans are constantly increasing the defense budget and intend to reach 2% of GDP within a few years, as they committed to NATO (and have not fulfilled for many years). Germany enters the year 2023 in a recession – a 0.3% decrease in GDP – this is already a fact. And it will be accompanied by another country From the “axis” of the Second World War – Italy, which is expected to decrease by 0.2%.
The Japanese government, a third axis country, has been consistently increasing the defense budget for the past two years, and by 2027 it will double the budget to 2% of GDP compared to 1% until recently (according to agreements with the American occupier at the end of World War II).
Japan will still grow in 2023 by 1.6%, but the inflation that has taken hold of its wings – 3.7%, excluding food, is taking away sleep from the employees and workers in the economy whose wages have been eroded by about 3% in the last year. More for security, less for standard of living – less consumption biased growth.
Biden speaks at the White House (Photo: Reuters)The eastern front
The Russians know how to fight for many years with civil austerity, that’s why they don’t tire against the Americans, who don’t spare in increasing the aid to Russia’s rivals, which has returned to being the number one enemy of the Americans, as in the days of the Cold War. Commodity prices, especially energy, refuse to fall despite Western attempts to impose price restrictions on Russia’s oil and gas prices. The world is thirsty for black oil and Russian gas, and countries buy from Russia without any choice.
These energy products are essential for the functioning of any economy. The granary of Ukraine and Russia also does not guarantee a good year ahead. If the world is there – they will love China, which will be able to return to being a supplier of everything that comes to our mind, as it was 42 years until two years ago, since the industrial revolution and the revolution of reforms of Deng Xiaoping, he will be deceived.
China’s production and exports are weakening: China can no longer sell cheaply, simply because raw materials and labor costs have risen beyond expectations. The manpower it has to operate the economy has drastically decreased against the background of the renewed spread of the corona virus with tens of millions of patients. Growth in the coming year is only 2.7% – a drastic drop compared to previous forecasts – and next year will be maybe 4.3%. The hope that China will help moderate the price increases has been dashed.
If there is no import of deflationary pressures from China, the result is the continuation of interest rate increases in the world, even in countries that refused to do so vehemently and hoped that the global inflation was transitory, i.e. temporary. The Central Bank of Europe realized that there was no hope that inflation would go down on its own, and announced that it would continue to raise interest rates at the same rate of 0.5% each time, regardless of the dismal results for the Eurozone.
Zelensky speaks in the US Congress (Photo: Reuters)Although the Israeli economy is strong relative to the world, the pain will continue in Israel and even spread to the housing market with the continued increase in the cost of taking out mortgages due to the continued interest rate increases expected in Israel, beyond what the Bank of Israel thinks, in order to catch up with the interest rate increases required in the US. If we do not keep a shekel Strong through the comparison of interest rates with the Americans, the shekel will weaken and expose us to higher inflation that will severely harm employees, savings, equality and the ability of the economy to function.
Everyone was talking about the 20.3% increase in apartment prices in the last year. Few, if any, noticed that the prices of new apartments decreased in the last reported month of September-October 2022 by 0.4% – the first decrease in the prices of new apartments since August-September 2021, when they decreased by 1.4%.
It is not yet a crisis, but it is the first rupture in the housing market, which certainly does not invite investors to try their luck in this market as a replacement for the disappointing capital market. According to the chief economist at the Treasury, the number of transactions for the purchase of an apartment by investors decreased by 80% compared to October last year and by 32% compared to September. Contractors’ sales decreased by 66% compared to October 2021 and by 35% compared to September. According to preliminary data, the downward trend continues in November as well.
As soon as apartment prices drop by a real rate, expectations will rise for further declines and sales will decrease. Even those who thought that they would be able to help their parents, who had provided provident funds for them, will find that their capital has eroded by 5.7% this year until November, and since then the training funds have decreased by 5.8%, and the investment provident funds have lost 7.7%.
All this without taking into account that the shekel decreased in value in the last year due to inflation of 5.3%, so that the entire public lost 11% of its capital from its “safe” investments with the institutions. Even those who wanted to play it safe and invested in a linked or non-linked government bond basket, in both channels the loss in the last year was about 9.5%.
It will be impossible to find solace in the new government either, which will certainly raise resources and impose taxes to finance the non-productive sector that elected it to power. So even if you want to immigrate abroad, I’m sorry to tell you, in most of the world the situation will be even worse than Israel, which still functions as the strongest economy in the world. You will have to wait for better years, even if you want to leave because of the declared policy of the members of the new anti-Hat coalition “In the sea and the anti-other. Successfully.
At least you can count on the fact that the American defense budget will increase next year. According to studies, it turns out that when there is an increase in defense spending in the US, Israel’s defense spending is slightly reduced. At least, thanks to the inflated American defense budget, there will be no need for additional heavy taxation in Israel, which will be imposed on the 4.2 million active and toiling employees in the economy, to finance more security. But tax payers’ money will be increasingly used to increase budgets for those who evade security service, work and labor. Nechama Purta.