Former Ministry of Finance accountant general Yaron Zelekha today blamed Governor of the Bank of Israel Prof. Stanley Fischer for the housing bubble. Zelekha told “IDF Radio" (Galei Zahal) that the damage caused by the Bank of Israel was irreparable and resulted in a lost generation.
"Fischer is to blame for the housing bubble because he cut the interest rate to zero to finance his unnecessary purchases of dollars," said Zelekha.
Commenting on Prime Minister Benjamin Netanyahu's affordable housing plan, Zelekha said that the release of land that Netanyahu promises as part of his Israel Land Administration reform will only result in lower home prices in ten years. "Developers will pocket 90% of the lower land prices, and young couples will get nothing," he adds.
Zelekha is pessimistic about solving the housing shortage. "The government is now trying to save the Carmel after it burned. What it's doing now it should have done two years ago. It is now necessary to raise the interest rate, and that will only ease the rise in prices; it won't roll them back. We now have a lost generation of young couples, the milk has been spilt, and the horse has bolted from the stable. That's the result of the Bank of Israel's failure."
Zelekha says that the solution is to immediately halt the purchases of dollars by the Bank of Israel and to raise the interest rate. "We must stop printing money. It's scandalous. We mustn’t continue to have a real negative interest rate. The economy has been growing by over 4% a year for the past two years, so there shouldn’t be a real negative interest rate. If we look at the total inflation rate, we see that the services component is over 4%, housing is tens of percent, and capital is also inflating a bubble in the capital market and overall inflation is nearing 9%."
Published by Globes [online], Israel business news - www.globes-online.com - on July 27, 2011
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