Marketplace - What could happen if Israel severs banking ties with the Palestinian economy

Episode Date: May 28, 2024

Commercial Israeli banks process transactions with Palestinian banks — about $10 billion in trade per year, plus and paychecks for tens of thousands of Palestinians with jobs in Israel. Normally, the government protects them legally if any funding finds its way into terrorists’ hands. Israeli finance minister Bezalel Smotrich recently threatened to end these waivers. In this episode, what could happen to the Palestinian economy if he follows through? Plus, what’s included in “cost of living” indexes, why consumer confidence is rising, and are we in a climate change housing bubble?

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From all of us at Marketplace, we wanted to say thank you to everybody that stepped up to donate and helped us stay on track this year. The support of our Marketplace investors is so important to keeping our public service newsroom running strong. We made great progress toward our goal and every donation is critical to helping us stay on track as we approach the end of our budget year. And if you didn't have a chance to donate, now's a great time to do that.

Give now at marketplace.org slash donate. And thanks again. Okay, serious question. What do you look at to decide how the economy's doing? From American public media, this is Marketplace. In Los Angeles, I'm Kyle Rizdall. It is Tuesday today, the 28th of May. Good as always to have you along, everybody.

In no particular order, here is what's in store for us economic data-wise this week. It is some of what we look at to decide how the economy is doing. Retail inventories, pending home sales, the Fed's go-to inflation measure, the personal consumption expenditures price index, PCE, and the vernacular. And that is on top of what we got this morning, the S&P CoreLogic Case-Shiller National Home Price Index. Say that 10 times fast. It went up again in March 6.5% nationally, so the housing component that is helping drive inflation, that is still a thing.

Also, though, according to the Conference Board and its Consumer Confidence Index, again out this morning, consumers are actually feeling more confident about the economy than they have been of late, a notable rise in that index after three months of steady pessimism. So housing, still expensive, but consumers happier? Marketplace's Kelly Wells gets us going. The Conference Board asks consumers two things. How's the economy now and how will it be in a few months? Senior economist Stephanie Guichard says consumers didn't exactly say they think things are getting better.

We saw an improvement that is mostly driven by fewer consumers expecting things to deteriorate. In other words, gas and food expenses are still high, but they don't think they'll get much worse. But overall, consumers are still pessimistic. Over two-thirds of consumers that are worried about a recession in the next 12 months, that's high. Meanwhile, mortgage rates also remain high while housing prices are rising faster and faster. That doesn't hurt consumer confidence directly because home prices are not part of the index. But one question that is included, whether folks plan to move in the next six

months? That remains at one of the lowest levels that it's been, I think, in the history of the consumer confidence index. That remains at one of the lowest levels that it's been, I think, in the history of the Consumer Confidence Index. Brian Connolly teaches business law at the University of Michigan. He says the rising K. Schiller index partly explains that. I don't mean to be pessimistic, but I think that we are going to just continue to see high housing prices. But there's a reason consumer confidence may have improved despite those housing prices, according to Towson University economics professor, Yangchen Zhao. The increase in consumer confidence mostly reflects this kind of shared sentiment towards

the strength of the labor market. Its biggest strength being the high number of available jobs. Zhao wasn't surprised by rising consumer confidence. He says his own confidence is pretty high too. I've been hearing about predictions of recessions and worse economic conditions for the last maybe two, three years, and we still haven't had one. And Zhao says this month's improvement isn't as big as it sounds. Yes, consumer confidence improved after three straight months of decline, but since 2022, the overall trend remains relatively flat. I'm Kayley Wells for Marketplace.

Wall Street, on this Tuesday's To Start the Trading Week, there are just three more days during which you'll be able to sell in May and then go away. We'll have the details when we do the numbers. Three words to set up this next story, cost of living. Where you live plays a huge part in how much you pay for almost everything. And with inflation, the macroeconomic story of the year, that cost of living is top of mind for people and for policymakers and for companies setting salaries and benefits. The catch, of course, is there are lots and lots of different ways to measure the cost of living, as Marketplace's Kristin Schwab reports. Have you ever wondered, maybe because you're weighing a move or maybe just for fun, what it would cost to live somewhere else. Cost of living calculator. Okay, New York. Well, compared to the major city where I grew up, Minneapolis,

Minnesota. Turns out for me, doing this for fun is not so much fun. The cost of living is 42% lower in Minneapolis. Not exactly surprising. Nearly everything is less expensive there. Housing, healthcare, a dozen eggs. Ooh, but a 12-inch Pizza Hut pizza is like a good 35 cents more expensive in Minneapolis. So, I don't know. I think I'm getting a good deal here. The people who decided that Pizza Hut is as important to American standard of living as a loaf of bread are at the Center for Regional Economic Competitiveness. It licensed its cost of living index to NerdWallet, Bankrate, and other websites for these calculation tools. Tyler Baines, one of the index's project managers, says the data can get pretty in the weeds.

Take dishwasher detergent. Do you sample the price of powder, liquid, or pods? And what size package? If we're noticing Walmart, Target, Safeway, they all have the 72-count dishwashing pods. You know, that's what we're probably going to price. Baines says the index includes what's most popular among households. But to figure that out requires a prototype. In other words, who are you measuring the cost of living for? In this case, it's an upper middle class consumer. So housing is a four bedroom, two bathroom, 2400 square foot house. The prices come from a mix of retailers and government data and

information reported by volunteers. They have to call these hospitals and these local practitioners and ask them, you know, what the price of a standard office visit is. Healthcare is a given in most cost of living indexes. There are a lot of them. Kavya Vagal is founder of the Living Wage Institute, which calculates the bare minimum it takes to get by in any given area. There's no budget for eating out at a restaurant. It doesn't account for leisure time, holidays, or unpaid vacation. And it doesn't account for really important factors for long-term

financial security, like savings, retirement, and investments. Vagal says the Living Wage Index gets updated for inflation every year. And though it began mostly as a tool for advocacy, increasingly, she says employers are using it to understand the cost of expanding into a new area. That benchmark is such a critical first step. These benchmark tools are helpful. But Jonathan Parker, a finance professor at MIT, says they're also pretty imperfect. That's because there is no theoretically correct way to do this that's very clean.

It's actually always based on a set of assumptions. Assumptions that don't account for lifestyle differences. For instance, when I plugged New York versus Minneapolis into the cost of living calculator, for transportation, it compared the price of a gallon of gas. Thing is, in New York, I take the subway. These often don't necessarily line up with the way different people experience changes in their cost of living. And, of course, they don't account for quality of life.

Maybe housing in one place is more expensive, but the public schools are better. So you can look at the different cost of living indexes, but not really understand that some of what you're paying for in the cost of living is actually you're getting on the other side in benefits. It turns out the true cost of living is a little subjective. I'm Kristin Schwab for Marketplace. place. What is not subjective is that if you miss something on the radio, we get it. It happens. That's why we've got a podcast. Marketplace.org or the platform of your choice. Follow us there too. Kaley started us off with the economic big picture, inflation and housing and how we're

feeling. Kristin Schwab was talking about the cost of living a minute ago, but you cannot talk about the state of the economy and how we are feeling about it, no matter where you live without talking food. So we got our Iowa farmer, April Hems, on the phone this morning for an update on her corn and soybean crops. She also gave us a side order of flattery. Hi handsome, how are you? April, how are you? I'm doing great. Oh my goodness. We have caught you I think betwixt and between. Where are you and what is

happening? You have. I flew out of Minneapolis this morning to Dallas, Fort Worth and let's just say there were storms in the area I'm finally here with a bunch of farmers. So we're ready to go and you're you're going like to Brussels or something I am it's a European feed association. So that's where I'm headed to schmooze with the Europeans All right. So you left Iowa with with seed in the ground, right? You're done planting? Oh, I am done planting, thankfully, and this is, it's amazing. I have had more rain in the month of May than I had all last year planting season from April

till October. All rain in one month, but I got everything in the ground ground but I'm with farmers who either aren't done yet from the north or are ready to replant hundreds of acres south of me so really so they have to get this sorry they have to go do it all over yeah yep because they planted it it got so much rain the seed either rots in the ground or doesn't come up so then they have to go back out and replant it that's why a lot of people don't farm yeah Yeah, but look, last time I think we spoke to you, you said the weather had been all kinds of janky for you and yet you had like record yields. I know. So who knows what's going to happen this year? I knew you

were going to ask me that question. You know, we'll see how it goes, but you just never know anymore. Have you sold your futures yet? Right. Have you sold any of the stuff that just in the ground? I have. I've sold about 30 percent. Our co-op gave me a heck of a bid, but it's kind of like wait and see because this market just keeps going. Like soybeans are down 18 cents today and then they could go up 50 tomorrow. Who knows?

So but but wait, if your co-op, which I imagine is smart because they're farmers and people who do this for a living If they're so smart, why'd they give you such a heck of a bid when prices are kind of all over the place and down today? Well, they've got their behinds covered some way that's for sure But as a farmer it was a five dollar bid, right? My cost of production is below that so I thought Yeah, wait, there's that like five5 a bushel, $5 a what? $5 a bushel, yes. $5 a bushel, and that's what we sell on.

And so if it goes up, I hopefully have way more to sell. So yeah, I'm selling way ahead of time. Right, right. All right, let's get back to your trip. You're going to Brussels, you're talking to European feed people. I am. And how much do you sell overseas?

Is that like a real thing for you or is it just sort of a thing you do on the side to get to go and travel in schmooze? Schmooze. So I'm on the United Soybean Board and 60% of our soybeans are exported. And two-thirds of them are exported through either value added through the animals and then the whole beans, oil and meal and the meals become a lot more because of the bigger crush. So making more renewable diesel.

So yeah, no, it's a real thing and they, these companies like to hear how we raise our, you know, soybeans, what we're doing to care for the land. So a lot of that comes into play because that's what their customers are asking for. And I love to tell my story and talk about the farm. I know you do. I know you do. I know. That's why we keep calling you back.

Look, you'll know this and everybody who farms or is farm adjacent knows this. It's super complicated what you do. It's really complicated. Well, there's a lot of balls in the air, that's for sure, especially this time of the year. We're trying to get planted, and so we have to be a little bit of everything. We have to be an agronomist, a marketing person,

fix our equipment when we can, a mechanic. So there's just, yeah, it is complicated. It's not like we just throw our seeds out on the ground. Although some other people say, April, you can throw seeds out in your driveway and it'll grow 40 bushel beans. And I go, only 40. So we have fun ribbing each other, but it's not easy and it's a lot of risk. So you have to just really be nice to your banker. Which we have talked about.

April Hemis, she's our farmer, corn and soybeans, and also clearly international trade negotiator too. There we go. Thanks, April. Talk to you soon. Thanks, Kai. Great to talk to you. Bye.

You too. Bye-bye. Coming up. If you suddenly have one of your bills go up 99.4%, that is a shock. Yes, yes it is. First though, let's do the numbers. A bushel by the way. Wikipedia tells me it's 32 quarts, in case you weren't familiar, which I was not. Dow Industrial is up 216 points today, almost 6 tenths percent, 38,852.

The Nasdaq added 99.6 tenths percent there, 17,019. The S&P 500 picked up a single point, barely anything tall, percentage-wise, 53.6. 52%, that is how many more iPhones Apple sold in China this April. Compared to last, that's according to some number crunching by Reuters shares in Apple, didn't care, basically unchanged.

US cellular rang up more than 12% today after T-Mobile US announced it would be buying most of the regional carrier's assets. T-Mobile added almost 8 tenths percent. Another, another record high for AI chip maker Nvidia. They designed the chips, it accumulated 7 and a tenth percent today. Competitor Advanced Micro Devices added 3.1%. $53 billion, that's price Hess shareholders have set for the energy companies purchased by Chevron. Hess pumped up 4.1%.

Today, Chevron bubbled up 8.1%. Bond prices went the other way, down the yield on the 10-year T-note, 4.54%. You're listening to Marketplace. Intel Core processors. You'll be able to bring your most intensive projects to life with built-in AI, minimalistic design, immersive visuals, and cinematic audio. When you shop online at dell.com slash deals, you'll have access to exceptional tech and electronics plus free shipping on everything. Amazing prices await you for a limited time only at dell.com slash deals. That's dell.com slash deals. From all of us at Marketplace, we wanted to say thank you to everybody that stepped up to donate and helped us stay on track this year.

The support of our Marketplace investors is so important to keeping our public service newsroom running strong. We made great progress toward our goal and every donation is critical to helping us stay on track as we approach the end of our budget year. And if you didn't have a chance to donate, now's a great time to do that. Give now at marketplace.org slash donate. And thanks again. My name is Lee Hawkins.

I've been a journalist for over 25 years. On my new podcast, What Happened in Alabama, I get answers to some of the hardest questions about how things came to be for many black Americans and the truth that must come before any reconciliation can happen. I investigate my family history, my upbringing in Minnesota, and my father's painful nightmares about growing up in Alabama. What happened in Alabama is a new series confronting the cycles of trauma for myself, my family, and for many black Americans. Listen now.

This is Marketplace. I'm Kai Rizdal. The human costs of the war in Gaza are very real and very high. And they come alongside economic devastation. The productive capacity of the Gazan economy is essentially in ruins. But the two financial sides of this war, their banking systems are still extremely closely connected, and so could become a new part of the conflict. Marketplace's Sab still extremely closely connected and so could become a new part of the conflict. Marketplace's Sabri Ben-Shur has that one.

Samer Hleili is an economist and president of the Palestine Exchange. That's the Palestinian Stock Exchange. He also imports materials for his real estate business. Cement, iron, tiles, electrical appliances, I mean a lot. All of that comes through Israel, as do most imports into the West Bank and Gaza. 55, maybe 57% of our imports comes from Israel. That includes water and electricity. 90% of Palestinian exports go to Israel.

So while they're politically at odds, the Palestinian and Israeli economies are very closely intertwined. We depend on Israel, if imports and exports, and we depend on Israel on labor, employment. Nasser Abdelkarim is a professor at the Graduate School of Business and Finance at the Arab American University in Ramallah. Certain taxes for the Palestinian authority also have to go through Israel, amounting to more than half of the PA's revenue. So these huge economic ties resulted in huge banking ties.

To the point that the primary currency in the West Bank in Gaza is the Israeli shekel. And anytime shekels need to move between Israel and the West Bank in Gaza, anytime paychecks are wired or bills are paid or taxes collected, an Israeli bank works with a Palestinian bank to make that happen, with a condition. They're willing to do so only if they get indemnity from the government of Israel. Nadine Bodo-Tradstenberg is former deputy governor

of the Bank of Israel and current vice chair of Esh Bank. These commercial banks were afraid that they might be exposed to financial flows which hide some money laundering going on or some terror financing. So the government of Israel and the US government provide waivers periodically that protect these banks from getting sued.

Until now, Israel's finance minister is threatening to let its waiver expire. John Alterman directs the Middle East program at CSIS. Not only does that cripple the Palestinians' ability to engage with the rest of the world, it cripples their ability to engage with Israel. The already weak Palestinian authority, he adds, with most of its revenue off-limits, could collapse, sending the West Bank into chaos. The waiver expires July 1st. In New York, I'm Sabri Benishor for Marketplace. Let's pick up with housing again after Kayleigh Wells set the table for us earlier with the

latest Kay Schiller National Home Price Index up 6.5% year over year, up 7.4% in the 20 biggest cities in this economy. That is happening, we should point out, in the face of mortgage rates that are circling 7% still. Housing is a challenging market right now, and it could get more challenging for many more people because the planet is getting hotter. MarketPolice's Amy Scott has that one. Amy Scott 20 years ago, Dave Burt was working at Blackrock, the big investment firm, when he started worrying about the health of the U.S. housing market.

Part of his job was to evaluate the subprime mortgages that were pooled together in complex securities and look for risk. By the end of 2005, I couldn't believe how offsides the market had gotten in terms of its willingness to continue extending credit that had no chance of being good credit. So he left BlackRock and started his own company to short the subprime mortgage market, basically betting money on its collapse. A pretty lucrative decision, as it turned out. Now, nearly 20 years later, Burt thinks the market is due for another correction, as homeowners in places with growing risk of flooding and wildfire have to pay more for insurance.

This is actually happening right now and is probably going to happen over the next three to five years, like a full reckoning of these new costs for 15 and 20 percent of the homes in the U.S. Burtt isn't predicting a meltdown on the scale of the Great Recession, but does expect a significant housing downturn in some areas. Much higher insurance costs will make it harder for people to afford their mortgages, depressing demand in those areas, and reducing property values. Inevitably, Burt says, some will default.

If all their equity is already gone, their costs are going up a ton, they can barely afford it. That's when people walk away. Dave Burt isn't the only one seeing parallels with the subprime mortgage collapse. Tony Moss is founder of AmeriCatalyst, a mortgage and real estate advisory firm. She says what's happening with insurance premiums is a bit like those adjustable rate mortgages that started with low teaser rates that then ballooned after a few years. I'm a perfect example. I can afford my mortgage. What I can't afford are my escrow payments. Escrow includes homeowners insurance and property taxes, which have also gone up.

When Moss first bought her house in Austin, Texas in 2011, her insurance cost $1,200 a year. Now my insurance just went up 48% this year. So it's $8,600 a year just for homeowners insurance. She's planning to move to a more affordable part of the country with lower climate risk. And I'm, you know, middle income. I can't imagine if you extrapolate that for lower income Americans, how in the world is that sustainable?

Stephanie Watkins-Cruz worries it's not. She's director of housing policy at the North Carolina Housing Coalition. She says insurance companies in the state recently proposed an average 42% increase in premiums to account for inflation and the increase in severe storms. Coastal homeowners could see much bigger increases. For example, they're proposing in Brunswick County to increase the rate by 99.4 percent. And just from a budgetary perspective, if you suddenly have one of your bills go up 99.4 percent, that is a shock. The state insurance commissioner has rejected the proposed rate hikes and set a hearing for October.

Watkins-Cruz says older homeowners on fixed incomes are especially vulnerable when their housing costs aren't fixed. Unlike the last crisis, though, homeowners have built up significant equity in the past several years, as prices have kept going up. Ben Keyes is a professor of real estate and finance at the Wharton School. He says rather than default on their loans, he expects most people will be able to sell and move somewhere cheaper, even in the case of disaster. The idea that we would expect there to be a huge wave of defaults or delinquencies feels relatively unlikely. I think what you see

in many cases is actually people use insurance payouts to pay off their loans and move elsewhere. But for those who bought at the top and stretched to afford high prices at high interest rates, Dave Burt says a sudden drop in home values could be devastating. I would expect there to be like a race for the exit in some of these markets and you know some people will be stuck. Burt wouldn't tell me if he's shorting the housing market now, but he's already seeing listings of risky homes increase and expects prices in those markets to start falling before long. I'm Amy Scott for Marketplace.

This final note on the way out today, in which we may finally have heard the last of Adam Newman. Newman, for those unfamiliar, co-founded WeWork back in 2010, built it into a $47 billion co-working pioneer before, well, before a lot of things happened. An IPO failed, its business model didn't quite work out, shall we say. There were corporate governance concerns. Newman was forced out with a very generous golden parachute. The company was forced into bankruptcy. It was just ugly.

Anyway, this past February, the New York Times reported that Newman was trying to buy the company back. That now it seems is dead. Newman has written to the Times, saying he's out. Again. Our digital and on-band team includes Kerry Barber, Jordan Mangy, Dylan Miethenen, Janet Nguyen, Olga Oxman, Ellen Rolfes, Virginia K. Smith, and Tony Wagner.

Francesca Levy is the executive director. And I'm Kai Rizdal. We are back tomorrow. This is APM. My name is Lee Hawkins. I've been a journalist for over 25 years. On my new podcast, What Happened in Alabama, I get answers to some of the hardest questions about how things came to be for many black Americans and the truth that must come before any reconciliation

can happen. I investigate my family history, my upbringing in Minnesota, and my father's painful nightmares about growing up in Alabama. What Happened in Alabama is a new series confronting the cycles of trauma for myself, my family, and for many Black Americans. Listen now.