I'll be talking about Scott Ritter's new interview out today in which he claims that Israel has lost the war and "its economy is in tatters." Here is the real truth of the matter:

The Economic Impact of War: Israel vs. US in 2024

As Israel navigates the economic challenges of wartime, comparing its financial standing with a non-wartime economy like the United States offers valuable insights into Israel's resilience and the broader implications of conflict on national finances.

Economic Growth: Slowing but Steady

Despite the ongoing conflict in Gaza, Israel's economy is showing remarkable resilience. The International Monetary Fund (IMF) projects Israel's growth at 1.6% for 2024, down from 2% in 2023. While this represents a slowdown, it's noteworthy that the economy continues to expand under challenging circumstances.

In contrast, the US economy, free from direct military conflicts on its soil, is expected to grow at 2.1% in 2024. This slight edge in growth demonstrates the economic drag of war, but also highlights Israel's ability to maintain positive growth despite adversity.

Government Spending and Deficits

The war has inevitably led to increased government spending in Israel. The fiscal deficit is projected to rise to about 6% on average from 2023-2025, up significantly from previous estimates. This increase reflects the immediate costs of military operations and domestic support measures.

The US, while not at war, also runs a substantial deficit, projected at 5.3% of GDP for fiscal year 2024. This comparison shows that even in peacetime, major economies often operate with significant budget gaps.

Debt Levels: A Key Differentiator

One of Israel's economic strengths is its relatively low public debt, standing at about 67% of GDP. This is slightly below the average for OECD countries and provides Israel with financial flexibility during these challenging times.

The US, on the other hand, carries a much heavier debt burden, at approximately 123% of GDP. This stark difference underscores Israel's prudent pre-war financial management, which now serves as a buffer against economic shocks.

The Power of Reserves

Israel's substantial foreign exchange reserves, exceeding $200 billion, have proved crucial during this period. The Bank of Israel's decision to release $30 billion to support the currency demonstrates the strategic importance of these reserves. This move has helped maintain currency stability, a critical factor for economic confidence during wartime.

The US, given its unique position as the issuer of the world's primary reserve currency, doesn't maintain foreign exchange reserves in the same way. Instead, it relies on the inherent strength and global demand for the US dollar.

Concluding Thoughts

Israel's economy, while undoubtedly affected by the ongoing conflict, shows remarkable resilience. The country's strong fiscal position before the war, characterized by manageable debt and substantial reserves, has provided a crucial buffer against economic shocks.

When compared to the US, Israel's economy naturally shows signs of war-related stress, particularly in terms of slower growth and increased deficit spending. However, its lower debt levels and strategic use of reserves demonstrate effective economic management in challenging times.

As the situation evolves, Israel's economic performance will remain a testament to the importance of sound financial planning and the resilience of a diversified, modern economy in the face of geopolitical challenges.

To compare Israel's financial state to the US, let's examine the key economic indicators mentioned:

Economic Growth

• Israel: Expected to grow by 1.6% in 2024, down from 2% in 2023.
• US: The IMF projects US growth at 2.1% for 2024, slightly higher than Israel's forecast.

Fiscal Deficit

• Israel: Projected to increase to about 6% on average in 2023-25.
• US: The Congressional Budget Office projects a federal budget deficit of 5.3% of GDP for fiscal year 2024.

Public Debt

• Israel: About 67% of GDP.
• US: The US public debt is significantly higher, at approximately 123% of GDP.

Foreign Exchange Reserves

• Israel: More than $200 billion, with $30 billion released to support the currency.
• US: As the world's reserve currency, the US doesn't maintain foreign exchange reserves in the same way. Instead, it has gold reserves worth about $11 billion.

Comparative Analysis

1. Growth: While both countries are experiencing slower growth, the US is projected to outpace Israel slightly in 2024.

2. Fiscal Deficit: Israel's projected deficit is slightly higher than the US, indicating more fiscal pressure.

3. Public Debt: The US has a significantly higher public debt-to-GDP ratio, which could be a long-term concern.

4. Reserves: Israel's substantial foreign exchange reserves provide a strong buffer against economic shocks, especially relative to its size.

5. Economic Resilience: Despite the war's impact, Israel's economy shows resilience, maintaining stable growth and manageable debt levels.

6. Currency Stability: Israel's ability to support its currency with reserves demonstrates financial strength, while the US dollar's global reserve status provides inherent stability.

Overall, while Israel faces immediate challenges due to the conflict, its economic fundamentals remain relatively strong. The US, despite higher growth projections, faces long-term concerns with its significantly higher public debt.

Citations:
[1] https://www.iemed.org/publication/economic-impact-of-the-gaza-war/
[2] https://tradingeconomics.com/israel/gdp
[3] https://en.wikipedia.org/wiki/Economic_history_of_Israel
[4] https://www.undp.org/sites/g/files/zskgke326/files/2024-05/2400257e-gaza_war-_expected_socioeconomic_impacts-pb.pdf
[5] https://www.cfr.org/article/us-aid-israel-four-charts
[6] https://www.middleeastmonitor.com/20240605-israels-economy-is-creaking-under-the-effects-of-its-assault-on-gaza/
[7] https://www.pbs.org/newshour/world/as-israels-economy-struggles-leading-economists-say-ending-the-war-in-gaza-would-help
[8] https://www.bbc.com/news/world-middle-east-68884729