by Mish
Last month, Saudi Arabia threatened to dump $750 billion in treasury holdings if Congress passed a bill allowing US citizens to file 911 claims against the Saudis.
Clearly the numbers don’t mesh. Who is telling the truth?
Please consider U.S. Discloses Saudi Arabia’s Treasuries Holdings for First Time.
The Treasury Department has released a breakdown of Saudi Arabia’s holdings of U.S. debt, after keeping the figures secret for more than four decades.
The stockpile of the world’s biggest oil exporter stood at $116.8 billion as of March, according to data the Treasury disclosed Monday in response to a Freedom-of-Information Act request. The tally ranks Saudi Arabia among the top dozen foreign nations in terms of holdings of U.S. debt, and compares with China’s $1.3 trillion trove, and $1.1 trillion for Japan.
Yet the disclosure may bring more questions than answers, because Saudi Arabia’s foreign reserves amount to $587 billion, and central banks typically put about two-thirds of their coffers in dollars, according to International Monetary Fund data.
Some nations accumulate Treasuries in offshore financial centers, meaning the holdings show up under the data of other countries. For example, Belgium, which held $143 billion of U.S. government debt as of February, is home to Chinese custodial accounts, analysts say.
1970’s Decision
The U.S. started releasing data on foreign ownership of Treasuries in 1974. Since then, the Treasury’s policy has been to not disclose Saudi holdings, and it has instead grouped them with those of 14 other mostly OPEC nations, including Kuwait, Nigeria and the United Arab Emirates, Bloomberg reported in January. The group held $281 billion as of February, down from a record of $298.4 billion in July.
For more than a hundred other countries, from China to the Vatican, the Treasury provides a detailed monthly breakdown of how much U.S. debt each owns. The figures for March are scheduled for release at 4 p.m. New York time Monday.
The question of Saudi holdings of Treasuries is gaining importance as the monarchy faces fiscal pressure from the decline in oil prices and costly wars in the Middle East.
No One Telling the Truth, Multiple Ways
- On the low side, it’s highly likely both Chinese and Saudi holdings are understated by offshore accounts.
- On the high side, it’s highly likely Saudi Arabia does not have the alleged $750 billion.
- On the bluff side, the idea Saudi Arabia would dump US treasuries is unlikely.
- On the silly side, talk of “nuclear economic threats” if Saudi did dump its treasury holding is absurd.
As importance on Saudi Arabia petroleum wanes, the US finally gives us a figure, albeit one that appears ridiculous.
As for the bluff, there is no shortage of takers of a mere $116.8 billion in treasuries or even something much higher.
Assuming interest rates rose a bit, the Fed would welcome the process. The Fed appears desperate to hike rates, and a bit of pressure on rising rates would help the cause.
Nonexistent Nuclear Threats
Talk of dumping being a “nuclear threat” even by China is preposterous. Dump treasuries for what? Dollars? Euros? Gold?
The alleged threat of dumping treasuries applies to China as well as Saudi Arabia.
Please consider Peter Schiff: “China is Bleeding It’s Secret Account. Hit The Panic Button!”
According to Peter Schiff, China’s mass capitulation of Treasuries threatens America’s empire. As Peter explains, we’ve already borrowed far more than we can EVER actually repay, and in under 4:00, Peter explains why the economic collapse for the U.S. is going to be “Economic Armageddon.” As a nation, we have followed in the footsteps of every other nation in history that has collapsed before us. Making matters worse, is that we’re infinitely bigger than most of them were, which means our crash is going to be infinitely worse. It is completely within the realm of possibilities that people will be “hurting” one another for food. Things could get THAT bad.
Nuclear Economic Nonsense
China has already blown through a half a trillion dollars in US reserves.
Bloomberg reported As China Dumps Treasuries, World Sees No Better Place for Refuge.
This is not “dumping” treasuries to get rid of them. Rather, treasury “dumping” is a mathematical necessity in response to massive capital flight from China.
Chinese investors are desperate to get their money out of China any way they can. The result is massive buying of overpriced land in Vancouver and the West coast of the US.
Fundamentally, every one of those dollars must eventually come back to the US, one way or another. China could also buy shares in US companies, and perhaps it even has.
For all that alleged “dumping” of US treasuries, yield on the 30-year long bond is flirting with record low levels.
And here’s the kicker. The US would actually like China to dump treasuries. The Fed wants to hike, and higher interest rates would enable the Fed to hike sooner.
Moreover, the US would welcome a strengthening Yuan to slow Chinese exports to the US, improving the US balance of trade.
Ridiculous Bluffs
The threat by Saudi Arabia to “dump US treasuries” (yes that would constitute a genuine dump as opposed to capital flight), is nothing more than an obvious bluff. If Saudi sold treasuries it would get US dollars. What would it do with them?
Once again, it is a mathematical certainty those dollars would eventually return one way or another. If Saudi Arabia sold the dollars for euros, then it would be sitting on a pile of euros. But someone would still have to hold the dollars.
People who propose dumping of treasuries would amount to nuclear economic war are either economic fools or purposeful charlatans.
Saudi Involvement in 911
Without a doubt, Saudi nationals, including government officials were involved in the 911 attack on the United States.
Saudi nationals continue to support ISIS.
For a detailed discussion, please see Understanding the Saudi, Chinese “Economic Nuclear War” Threat; Saudi 911 Round-Up.
Mike “Mish” Shedlock
