Analyze this: What does the dollar's drop have to do with the cost of peace for Israel?

Chavez: Dollar's fall is the fall of the American empire.

By CALEV BEN-DAVID
dollar graf 88 224 (photo credit: Bloomberg chart)
dollar graf 88 224
(photo credit: Bloomberg chart)
The Israelis heading for Annapolis next week can now rest assured that at least one aspect of their trip will be a success - shopping. That's because the dollar dropped to a nine-year low against the shekel this week, falling below the previously unimagined NIS 3.90 mark. While that might be good news for Israeli visitors to the US looking to stock up on goodies before heading home, the dollar's continuing decline is not a welcome development for the Israeli economy. The drop has seriously hurt Israeli exports set in dollar prices, due to the lag time between when orders are made and paid for. Some experts also believe the decline is leading to a lack of confidence in the dollar among local property owners as the preferred currency in which to set their long-term rents. Elsewhere in the world, some see the impact of the declining dollar in more dramatic terms - and are not unhappy with it. On Monday at their summit meeting in Teheran, the duo of Iranian President Mahmoud Ahmadinejad and Venezuelan President Hugo Chavez seemed giddy at the dollar's dropping value. "God willing, with the fall of dollar, the deviant US imperialism will fall as soon as possible, too," said Chavez. "The fall of the dollar is the fall of the American empire," he continued, declaring that the Euro is now a more reliable banknote, and that he would lead an effort to create a common Latin American currency to challenge the supremacy of the once almighty dollar. Last weekend at the OPEC summit in Riyadh, Chavez and Ahmadinejad proposed that the cash-flush oil cartel begin pricing its precious product in a basket of currencies, rather than just the dollar standard it has traditionally used. The proposal was blocked, primarily by Saudi Arabia - arguing such a move could even "collapse" the dollar - but it was agreed that the matter would be further studied. Over in America, though, the average citizen, and most of the economic experts, don't seem unduly concerned. After all, the US economy, despite its recent housing crunch, is still growing at a healthy rate. A low dollar means cheaper and higher exports; it also means a drop in value in the billions of dollars America owes out in foreign debt. Anyway, the price of a currency in the global economy is no longer an accurate indication of a nation's economic well-being; China, for example, purposefully keeps its own currency value low to power exports. And speaking of China, having invested in recent years in dollar-priced assets to the tune of over $1 trillion, it certainly can't take any comfort in this situation. I'll leave it to the economists to worry about whether the dollar's slide will spark higher interest rates in the US, and possibly spark inflation, or how it will impact on bond prices. In any case, it's clear that the dollar isn't quite what it was in the days when its strength as measured against other currencies was the very icon of American power abroad - even more so perhaps than its nuclear arsenal, which the rival Soviet Union could match, while the worthlessness of the ruble was leading it into the financial dustbin of history. But in today's globalized economy - in which the US is still the biggest player, but no longer the unilateral economic dominant force it once was - the greenback has undoubtedly lost some of its luster. And American power itself? Are Chavez and Ahmadinejad right, sitting atop vast reserves of a natural resource that now glimmers like black gold in a way the diminished dollar no longer does, to view American influence as dropping together with its currency? Not quite - and you don't have to look hard for a better example of that than Annapolis. Although in recent years there has been much talk of moving the Middle East peace process forward on a multilateral track - and attempts like the "Quartet" (the US, UN, EU and Russia) to formulize just that - at the end of day, it is only Washington alone, acting alone, that could have put together a conference like Annapolis, and gathered (or pressured) the relevant players to attend. So if the dollar no longer inspires confidence in American influence, next week's gathering, whatever practical purpose it might - or might not - serve, is perhaps a more apt symbol of the current fortunes of US power. However, there's one problem with that. Just as Israelis have long banked on the value of dollar in many of their business transactions, so has Israel long relied on the US as a valued guarantor of some of its security needs. And Washington has occasionally taken advantage of that reliance to call in some of its notes, especially when asking Jerusalem to take speculative risks for peace of the type that will undoubtedly be raised again at next week's conference. All that, though, is based on the understanding that trusting in the value of American power is the most dependable long-time investment in the marketplace of global alliances. But that value isn't divorced from economic strength - and finding some nice dollar-cheap bargains in Annapolis shops might be a sobering reminder that no investment, even that one, is a sure thing. Calev@jpost.com