Is Israel's economic bubble about to burst? If you ask Jesse Colombo, an economic commentator at Forbes magazine, the answer is yes.
In an opinion article published on the magazine's website, Colombo predicts doom for the Israeli economy and details the reasons why, according to him, the Israeli economy is a bubble about to burst.
He says that although Israel is no longer considered an emerging economy, the economic bubble fits the general pattern of bubbles in emerging markets, a topic that Colombo has been debating quite a bit. He believes that low interest rates in the US, Europe and Japan, combined with the quantitative easing program launched by the US central bank, have led to an inflow of capital into emerging markets. He claims that these capital inflows are the reason Israel has managed to maintain a current account surplus despite the widening trade deficit.
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The commentator notes that the low interest rates set by the Bank of Israel, together with the rapid growth in the money supply, following the global financial crisis, created the real estate bubble, in which prices have soared by 801% since 2007.
Colombo argues that the housing bubble helped increase private consumption in Israel, but this is not a stable trend and will reverse after the housing bubble bursts. He explains that low interest rates are the main drivers behind the Israeli bubble, so when interest rates rise the bubble will burst.
After the bubble bursts - he warns - housing prices will fall, banks will suffer losses from the mortgages they granted, startups will experience a wave of failures, the stock market will suffer sharp declines - and unemployment will rise.
According to the commentator, real estate is not the only bubble. He also details the existence of a technology bubble in Israel, which he defines as "the second most important startup center in the world after Silicon Valley." According to him, the technology bubble in Israel will burst at the same time as the American technology bubble bursts.
The commentator points an accusing finger at former governor Stanley Fischer: "His policies are responsible for creating the artificial prosperity that resulted from the bubble, which ironically resembles the one that caused the global crisis." According to him, Fischer is considered a hero only because he left the Bank of Israel before the bubble he helped create burst.
