Money and the Mideast: How Fed’s Janet Yellen Could Affect Israel Pact – New York Sun

7 months ago Comments Off on Money and the Mideast: How Fed’s Janet Yellen Could Affect Israel Pact – New York Sun

Thousands of pro-Israel activists converging on Washington next week for the annual conference of the mighty pro-Israel lobby, the American Israel Public Affairs Committee, will hear from Vice President Biden, Hillary Clinton, and Donald Trump. One person important to the future of the America-Israel relationship, though, is missing from the conference agenda: the chairman of the Federal Reserve, Janet Yellen.

Mystified by what monetary policy has to do with national security and the Middle East? It turns out that looming over the conference, and over the America-Israel relationship overall, is the question of the future of the $3.1 billion a year in military aid that America gives to the Jewish state.

That military aid — technically, foreign military financing grant assistance, mostly spent to buy American-made equipment — is now governed by a memorandum of understanding between Israel and the America, signed on August 16, 2007. That ten-year, $30 billion deal set aid at $3.1 billion a year for the years between 2013 and 2018.

Renewing the deal for another decade came up last year as President Obama sought to overcome congressional opposition to his scheme to lift some sanctions on Iran in return for Tehran’s promises to abstain from developing nuclear weapons. In an August 19, 2015, letter about the Iran nuclear agreement to Congressman Jerrold Nadler, a Democrat from New York who is active on Israel-related issues, Mr. Obama wrote, “we will continue talks with Israel on concluding a new 10-year Memorandum of Understanding … that would cement for the next decade our unprecedented levels of military assistance.”

In a September 2, 2015, letter to members of Congress about the Iran deal, Secretary of State Kerry characterized the foreign military financing aid to Israel as “$8.5 million per day” and repeated the Obama language about “cement for the next decade our unprecedented levels of military assistance.”

Speaking of the value of a dollar — or 3.1 billion of them — ten years down the road, the topic of inflation becomes difficult to escape. It’s not just the elephant in the room, it’s a herd of them. David Makovsky, who served as a senior adviser to Mr. Kerry at the State Department, wrote this week in ananalysis for the Washington Institute for Near East Policy, “Israel is reportedly requesting $5 billion per annum over the next ten years, while the U.S. position is between $3.4 [billion] and $4 billion. In Israel’s view, the lower end of that range would actually represent a decrease in aid, since the 2007 MOU would have amounted to $3.6 billion per year if one factors in inflation.”

If one factors in inflation. So that’s what Janet Yellen has to do with it.

It’s a classic Democratic double standard. When Republicans on Capitol Hill try to rein in welfare spending, the left squawks that an increase of less than the rate of inflation is a “cut.” Yet when it comes to money to buy missiles, tanks, machine guns, and bullets for America’s premier Middle Eastern ally against militant Islamist terrorism, the Obama administration all of a sudden discovers spending restraint.

It’s preferable to acknowledging that the Obama Iran deal, touted by the White House and State Department as making the Mideast safer, paradoxically requires Israel to spend more on defense to protect itself from the deal’s dangerous consequences.

Simply defining inflation in this context raises some confounding questions. Is the yardstick the American consumer price index? An Israeli one? The federal Department of Labor’s CPI calculator puts the buying power of today’s dollar’s at a mere 88 cents as measured in dollars of 2007, when that last 10-year memorandum of understanding was signed.

As measured in gold (one specie in which the Founders defined the dollar), the value of the dollar has plummeted even further during that span. Back on August 16, 2007, a dollar bought about one 650th of an ounce of gold. Today, it buys only about one 1,230th of an ounce. Measured in Israeli shekels, the dollar has strengthened slightly since 2007.

What is the present discounted value of an American promise of $3.2 billion a year, or $5 billion a year, in military aid for ten years? This is as much a question for macroeconomists as for generals, diplomats, or defense ministers. It’s a question about the inflation rate, or the definition and value of a future dollar.

The Israelis, at least, seem to have figured this out; speaking for their side at the signing ceremony for the memorandum of understanding on military aid back in 2007 was none other than the then-governor of Israel’s central bank, the Bank of Israel, Stanley Fischer.

Mr. Fischer now sits at Ms. Yellen’s elbow — he’s returned to the America and, since mid-2014, has been vice chairman of the Federal Reserve. On the Yellen-Fischer watch so far the dollar has been fairly stable as measured in gold, a fact that may prove mildly reassuring to the Israelis and their American supporters.

As for anyone else in America or overseas considering signing up for decade-long dollar-denominated deals or debt, the Israel-U.S. military aid example is a cautionary reminder to watch your wallet. The dollars you get paid a decade from now may well be worth less than today’s tender.

Mr. Stoll is editor of

Money and the Mideast: How Fed’s Janet Yellen Could Affect Israel Pact – New York Sun}