From: perlman@qso.Colorado.EDU (perlman eric)
Subject: Re: Borrowing Money for Israel????
Summary: Collins' article is completely dishonest, creative accounting. 
Keywords: Money
Organization: University of Colorado, Boulder
Date: Wed, 8 Apr 1992 16:41:13 GMT

In article <204554@unix.cis.pitt.edu> abas@unix.cis.pitt.edu (Jasem Alhumoud) writes:
>
>
>
>
>                      Borrowing Money For Israel: Annual
>                      Interest Alone Exceeds $3 Billion
>
>                            By Frank Collins
>
>
>   The double dip recession has now become so grave that the American people
>are demanding that President George Bush direct his attention to the sorry
>state of the domestic economy. Foreign aid, notoriously unpopular with the
>US public in recent years, has become doubly so in this period of economic
>distress.
>
>   Even if Congress fails to react to the disquiet about foreign aid, it is
>likely that the bloated US grants to Israel in particular will no longer
>be exempt from public scrutiny and that they will be looked upon as a bad
>congressional choice between responding to domestic fiscal needs and yielding
>to AIPAC, the Israel lobby.
>
>   Part of the taxpayers 'resentment against the practice of the federal
>government has been sparked by the manner in which Congress appropriates
>money, particularly foreign aid. Foreign aid generally is allocated through
>"continuing resolutions," without a "yes" or "no" vote on particulars. Key
>committee members then allocate 40 percent of the worldwide total of US
>bilateral foreign aid to Israel and Egypt. Aid to Egypt climbed to roughly
>two-thirds of that to Israel as a result of the US-brokered peace agreement
>between the two countries.
>
>   Grants for foreign aid are especially noteworthy because they amount to
>giving away borrowed money. The case of Israel over the last 40 years is
>the most ASTONISHING. Every dollars given to Israel has been money borrowed
>by the US Treasury from private lenders, domestic and foreign. As the
>Treasury debts are interest-bearing, the Treasury has had to borrow more
>money year by year to pay the interest on the outstanding debts incurred
>by grants to Israel, plus interest on the earlier interest.

This flat-out statement is just plain untrue; it has been debated in tpm
before, and the same has been pointed out.  Israel's credit rating is
very good, and it has never defaulted on a loan.  It also pays back the
loans it gets, and it should be noted that grants are *not* another form
of loan.  Note how these three facts are conveniently ignored in the
creative accounting done by Collins below.
 
>   By the end of the fiscal year 1990, such US borrowings, starting with
>a modest grant to Israel of $100,000 in 1951, totaled $32.111 billion for
>the grants themselves, and an additional $21.351 billion in accumulated
>interest, for a total of $59.565 billion.

What Collins is doing here is blaming a significant part of the US
deficit on grants the US Government gives to Israel.  Good job of
scapegoating, but it doesn't fly.  First of all, most of the military 
aid Israel gets is spent in the US, which means the government gets lots
back in taxes and economic spinoffs - at least 2 or 3-1 according to
most economists.  At a 28% tax rate, this means that in the long run
essentially nothing is added to the deficit by aid to Israel.  Second,
let's remember why Israel needs a lot of that aid, shall we?  

>   In FY 1991, annual interest alone on that $59.565 billion cost $3.246
>billion at the average Treasury rate of 5.45 percent. Thus the grants made
>to Israel for FY 1991, officially reported as $5.256 billion, actually cost
>US taxpayers $8.502 billion in FY 1991, when the $3.246 billion in interest
>is included.

More creative accounting.  Remember the above, plus the fact that this
counts aid back to the 1950s.  Between roughly 1954-1978, the US
Government didn't even run a deficit (with one or two exceptions - 1964
comes to mind). 

>   This lopsided situation will continue  in FY 1992, when $3.491 billion
>in interest will be added to the cost of the FY 1992 grant of $3 billion,
>which already has been paid to Israel in the first month of the fiscal year.
>This FY 1992 outlay, general details of which are summarized in the table
>below, does not include any part of the $10 billion in US loan guarantees
>requested by Israel, consideration of which was deferred for 120 days at
>the request of President Bush last September.

Of course, the $10 billion in guarantees doesn't involve any outlays by
the US Government, but the propaganda above implies that it does.  More
creative accounting.

>   If the deficit financing of subsidies to Israel were to continue for 10
>more years at the $3 billion minimum rate per year and at five percent
>interest, the total debt undertaken by the United States would be $155
>billion and the annual interest payment after 10 years would be $10.7 billion,
>more than three times the annual grant of $3 billion. This is an annual
>total of almost $14 billion, or more than $3,000 per year per Israeli.
>With this prospect, it is clear that borrowing ever-increasing amounts of
>money to give to Israel on an annual basis for the indefinite future will
>be unacceptable to the American public.

Of course, this ignores all the relevant facts, but that doesn't seem to
matter to Collins.  In order:

*US aid is spent in the US.  Economic spinoffs run at a rate of at least
2 to 1 and more often 3 to 1, which means essentially all the money
comes back to the government in taxes.  That money also serves to
stimulate the american economy.

*Israel repays its loans on schedule and has not defaulted on one of
them.

*Aid to Israel is assumed to be 100% deficit spending, which is
completely, utterly dishonest, as well as economically ignorant.

*Grants are equated with loans here, and nothing could be further from
the truth.  More creative accounting and dishonesty.

>              Abridged Listing of Annual Grants to Israel,
>                   together with the Cumulative Grants
>                    and the Compound Interest on Them.
>
>
>          Grant*        Average         Annual***      Cumulative     Cumulative
>         for given     Treasury**       Interest         Grants        Grants
>Fiscal    year         Interest         Payment        to Israel      + Interest
> Year    (million)     Rate (%)         (million)      (million)      (million)
>------   ----------    ----------       ----------     ----------     ----------
> 1951       0.1         1.83                 0.0              0.1           0.1
>
> 1961      18.3         2.30                63.8            345.3       2,856.4
>
> 1971       2.8         3.64               136.7            437.6       3,893.6
>
> 1981    1,291.0        6.91             1,024.9           8,280.2     17,148.5
>
> 1990    3,028.0        5.75             3,074.1          32,111.4     59,565.4
>
> 1991    5,256.0****    5.45             3,246.3          37,367.4     68,067.7
>
> 1992    3,000(+?)      5.13(est.)       3,491.9          42,623.4     74,739.1
>
> 2001    3,000(+?)      5.0 (?)          7,233.5          67,367.9    154,902.0
>
>   *The data for the grants to Israel were taken from the table in the
>    Congressional Research Service Issue Brief, "Israel: Foreign Assistance
>    Facts" by Clyde R. Mark, updated September 1991. The figures for the grants
>    used in these computations did not include the administrative costs of
>    direct loans and US loan guarantees and other indirect costs.
>  **The Treasury interest rates were calculated from data in Section 7 of the
>    "US Budget 1992" (US GPO).
> ***Calculated from cumulative grants plus interest at end of previous year.
>****This included $650 million for Israeli damages from the Gulf war and
>    a number of special grants. The Israelis are asking that the annual basic
>    grants of $3 billion be now increased to $5 billion.


Notice that the notes and table make the explicit assumption that every
cent of grant money to Israel is deficit spending.  It would be more
honest to divide the figure by 5, since this year's deficit is about 1/5
of the budget.  Further, even that would be dishonest, for the economic
reasons spelled out above.

The critical question remains, regardless of this article's dishonest
accounting: "Is aid to Israel in our national interest?"  World events
have consistently shown that the answer is a resounding yes.

Rest deleted.
-- 
"How sad to see/A model of decorum and tranquillity/become like any other sport
A battleground for rival ideologies to slug it out with glee." -Tim Rice,"Chess"
     Eric S. Perlman  <perlman@qso.colorado.edu> or <eric@lyra.Colorado.EDU> 
  Center for Astrophysics and Space Astronomy, University of Colorado, Boulder
Newsgroups: talk.politics.mideast