Saudis warn they will withdraw $750 Bn. from US economy if 9/11 Bill Passes

TeleSur | – –

The Saudis threatened selling off almost a trillion dollars in U.S. assets if Congress makes it legal to hold Saudi citizens accountable for 9/11.

Saudi Arabia has threatened the United States with economic reprisals should the U.S. pass a law allowing for its citizens to hold the oil-rich kingdom responsible for its alleged role in the 9/11 terror attack.

The New York Times said that Adel al-Jubeir, the Saudi foreign minister, delivered the kingdom’s message personally last month during a trip to Washington. He told lawmakers that Saudi Arabia would be forced to sell up to $750 billion in treasury securities and other assets in the United States before they could be in danger of being frozen by American courts.

The Saudis hold hundreds of billions of dollars’ worth of U.S. assets, and their sale would not only be a severe blow to the U.S., but also to the Saudis and the world economy.

The threats come from a bipartisan bill currently being considered in the U.S. Congress that would allow victims and family members of the 9/11 attack to sue the Saudi kingdom.

In 2002, a congressional commission investigated the events surrounding the attack, and how the 19 hijackers (many of whom were Saudi citizens) were able to operate without alerting U.S. intelligence agencies.

The report was released in 2004, but 28 pages said to detail the Saudi government’s involvement in the attack remain classified.

It concluded that no “senior level” Saudi government officials were involved, but many have said that the wording leaves room for involvement of other members of the Saudi royal family or government.

However, the New York Times quoted economists as saying that the sale of nearly a trillion dollars worth of assets would be too volatile an action for the Saudis.

Saudi Arabia’s assets are strained with a global drop in oil prices, initiated largely by the Saudi’s refusal to lower production, and a governmental budget that consists of large welfare programs that are funded by oil revenue.

On top of that, the move would destabilize world markets, something for which the Saudis would receive further blame. Many oil-dependent nations are feeling the pressure caused by Saudi Arabia’s consistent oil production.

The threats signal a new low for Saudi-U.S. relations. The two nations are strong allies, but the U.S. nuclear deal with Iran and Saudi Arabia’s reported financing of terrorist groups in Syria have put a strain the historically amicable relations.

The Obama administration has lobbied against the bill, saying it would put U.S. citizens abroad in danger.

Via TeleSur


Related video added by Juan Cole:

CBS This Morning: “Saudis respond to “60 Minutes” report on possible 9/11 link”

17 Responses

  1. The rate of return (in dollars) on any asset is going to be set by the central bank + general risk premia. The nationality or passport of the asset holder does not set the price of the asset in dollar terms. Saudi Arabia can sell their dollar assets to someone else, but no one will care, just as no one cared when China sold a lot of dollar assets. There was no fall in employment or increase in interest rates as a result of these portfolio shifts.

    What would make a difference is that if Saudi Arabia and many other nations refuse to purchase dollar assets, then the price of the dollar will fall relative to other currencies and U.S. exports will become cheaper and imports more expensive. Given that the U.S. is now a net exporter of oil, this is bad news for Saudi Arabia, and good news for U.S. workers, but possibly bad news for U.S. consumers. However the Saudi Economy is not nearly large enough to make a difference as forex markets move something like $5 Trillion per day, wheres our trade balance with Saudi Arabia is something like $13 billion per year. Differentials in interest rates are much more important than the politics, and of course Saudi Arabia needs a safe place to store their wealth outside of Saudi Arabia so that the princes can continue to rob their own people.

    • I would think the impact would be on future purchases and the interest rates which the US must pay to foreign investors. First, huge amounts of discounted US assets on sale will make it hard to sell new Treasury bonds. Second, if the US is seen as a place where legitimately held assets can be seized based on what might be political and ill-informed decisions, it becomes a risky place to hold money.
      So the result could be a curtailment of borrowing by the US.

      • No, because the U.S. lets its currency float and only borrows in its own currency.

        When foreigners sell dollar assets, they may cause the yield to go up in terms of foreign currencies, but the yield does not go up in dollar terms, which is what the borrower pays.

        Given that the dollar yield of treasuries reflects the future time path of overnight rates set by the Fed, the only way that foreign sales of dollar assets would cause the *dollar* yield to rise would be if the Fed chose to hike rates to defend some sort of forex peg (like many small nations do).

        But we let our currency float. We do not maintain any peg. As the famous saying goes “The dollar is our currency and your problem”.

        And especially in the current environment, when even small nations are trying to competitively devalue against each other in order to promote exports, causing the dollar to appreciate globally, a “threat” of depreciation would be highly welcome to U.S. firms.

        This is not only an empty threat, but a threat to help us.

  2. Worthless threat

    The basic reality is the Saudis (along with lots of others) are heavily invested in the USA because it is relatively safe. While they could withdraw funds from the USA, they would lose a significant portion of their investment because non-Saudi investors (Chinese?) will gladly buy the assets at discounted prices.

    It is LONG past time when the USA should NOT care one bit about what Saudis think. NOTHING the Saudis can do will effect the USA.

    China, Europe and even the USA are rapidly moving away from hydrocarbon energy. The USA, lead by California, put lots of environmental laws in place and not even the republicans can make them go away enough to stop the decline of coal, oil and to a lesser extent gas.

    China has acted like the USA in the unrestrained 1950s and has reaped the same bad result, so they are applying the lessons of California on steroids. This is why the huge solar projects, the huge passenger and freight train projects (most electrified) and all the other major non-hydrocarbon energy work in China. China is not doing it to save the earth , but to save themselves, just as the USA did it.

    The problem for Saudi Arabia is over time, oil will become less valuable and Saudi Arabia is only now starting to think about what happens when their cash cow gets sicker and close to death.

    Right now, oil is still the “best” high density portable energy storage medium, BUT the whole world is racing to find a better way and it is extremely likely oil will become less valuable in the not very distant future.

    The investments in the USA that the Saudis threaten to dump are their ONLY hedge against the future because they have wasted their wealth on pleasure and not invested it in their people and the future. Instead of building lavish palaces, they should have heavily educated EVERY citizen including the Shia.

    We should ignore the Saudis.

    • They are saying that there is a danger their assets in US could be seized by the courts in preparation of awards and settlements, so they would be crazy to keep the assets in the US.

      • It is very difficult – although not impossible – to obtain a pre-judgment sequestration of a defendant’s assets in a United States District Court.

        However, I am sure even the remote possibility of such a court order is likely to send the Saudis scrambling to protect their interests.

      • Basically, they lose almost everything no matter what they do.

        If they sell USA assets to move their remaining wealth to some other place to avoid the wealth being impounded to satisfy a judgement (which may never come), they lose a large part of their wealth to fire sale buyers, or

        If they stay in the USA they will possible lose assets.

        Note that there are very, very few viable alternatives to the USA for large investments.

  3. This is one of those “Let me get this straight” moments.
    We’ve spent trillions of treasury and spilled oceans of blood for geo-political purposes or financial something or other, or some damned thing.
    Meanwhile The Empire is helping The Kingdom to make matters worse in the poorest part of the ME, for reasons no one can identify, and supporting factions in Iraq and Syria that are not only fighting against each other, but supposedly against ideologies promoted by The Kingdom.
    And we seem to be poised to choose between a POTUS who couldn’t find The Kingdom on a map, even though he’s been there, and one who assures us that “we have to keep doing what works.”

  4. The Saudis have about $10 trillion total investment inside the United States.

    To give one the idea of the impact a financial impact could have on the U.S., the same $10 trillion figure represented the decline in value of publicly traded corporate securities in the U.S. following the 2008 financial meltdown

    The U.S. Treasury securities identified in the article can be easily liquidated and transferred out of America.

    The Saudis also own large blocks of shares in blue chip stocks in the U.S. that could be fairly easily liquidated.

    Saudi Arabia could also retaliate by initiating an oil embargo on the U.S. which has supplied about 28% of petroleum consumed in the U.S. in recent years. Gasoline prices tripled virtually overnight when an oil embargo was placed against the U.S. following U.S. support of Israel during the Yom Kippur War.

    • In order for the Saudis to sell, they need to find a buyer. For everyone selling $X trillion another group is buying $X trillion. Nothing is being “withdrawn” from the economy. For illiquid assets, like office buildings, the Saudis may have to take a loss or pay transfer fees on the sale, which is a benefit to the new buyer or local government. But no assets disappear from the economy — the building is still there and continues to provide the same amount of services to the economy as before, regardless of the nationality of the new ownership.

      All of the effects are going to be felt in any changes to the dollar, and again a slightly lower dollar helps us much more than it hurts.

  5. Let’s get the report first, then worry about “holding people responsible.”

    And just to quibble, can we/will we ever get a full understanding of the deliberate negligence of the Bush administration in the days before 9/11 ?? Juan has done a good job on how they blew off the warning of the one expert (Clark, if I recall correctly), but there’s so much more. The exact details of how the FBI and CIA didn’t collaborate/coordinate or even inform each other. The question of whether there were, or were not, military training exercises with simulated attacks scheduled for 9/11. We could “hold responsible” a lot of Americans before we go trying “hold responsible” the Saudis.

    Another quibble. The Treasury has issued the bonds, they received the payment from the purchasers long ago, and are paying out the dividends to the owner of record on the dividend dates. If the Saudis sell huge amounts, the price will drop just because of the friction inherent in matching sellers and buyers, if the price collapses, someone with money to invest will get a great bargain — but where is the blow to the U.S. economy? Who stops going to WalMart and Taco Bell because of this? How does this affect my meed for duct tape and paper towels today? There might be a lot of hyper-ventilation among commentators, I’m looking for the actual blow to the U.S. economy. On the other hand, if the Saudi dump collapses the price, they will indeed suffer a loss.

    And one more quibble. Every day a wide variety of citizens of all nations are jailed and punished for various crimes. Yet considering the vast array of injustices and outrages that the various governments and leading economic entities of our modern world perform every day, it would be comical if it were not so tragic, how little the powerful persons on our globe are ever “held responsible” for the messes and deaths they have directly and indirectly committed.

  6. to amplify spyguy and rsj’s notes, the threat is less than empty.

    First, Saudi Arabia’s investment in the US is in Treasuries for the most part. If they sell them someone else will buy them (by definition) and they don’t own enough to do more than make a temporary bump in the price if they sold them all tomorrow. Which would lose them money. Talk about cutting off your nose to spite your face.

    The other issue is that many assets in the US are stuff like property which is relatively illiquid and again, someone else will buy it. Equities the problem is even worse (for the Saudis) since here too, someone has to buy the stocks and they had better hope that the price hasn’t dipped since they bought it.

    This is the same reason that the Chinese want a healthy US economy. If we go down, we take China with us, because we are the ones who buy a large chunk of their stuff. (If the Chinese tried to dump Treasuries on the market they’d tank their own economy in about ten seconds, because all of a sudden they would have a truckload of now-worthless dollars. And their currency is effectively pegged to the dollar because that’s the benchmark they use to decide the “proper” value of the yuan. It would be a massive, get-me-a-drink inducing headache for the Chinese central bankers).

    About the only thing the Saudis could do is try to engineer an oil embargo and that’s not going to work either, they tried that one already and it didn’t work then. (The shocks were temporary and only made the US more energy efficient, though they did wonders for the Japanese car industry). This time? They are in an even weaker position as OPEC hasn’t been a really unified bloc for a while.

    Bluster on, your excellency.

  7. Our generation’s moonshot should be in battery technology and renewable energy. imagine how simple our foreign policy becomes…

    Bibi… Yeah, good luck. We’re tired of your crap, so enjoy your isolationism. You’ve earned it. No cash for you, period. Not a single bullet from our government or companies. Retreat to the 1967 borders, abandon your illegal settlements, and stay in your box for your own good. Keep proceeding down the path you have been, and we will arm the Palestinians.

    King Saud… yeah. Good luck to you. Eat your oil. Enjoy. No weapons for you. No cash for you. We will buy our oil (what little we will need) elsewhere. Consider re-orienting your exported Wahabi-ism, or else we will take an interest in the active dismantling of your entire global apparatus. We will also arm your more militantly-minded neighbors and foment unrest within your own borders.

    Anyone else in the Middle East feel like chiming in? No? Wise consideration. We’re done here.

    Sick to death of the whole region.

    – Zhirem

    • Unfortunately, batteries are NOT going to get much better because of basic physics and basic chemistry. That is, we are just about at the limit of what can theoretically be done.

      I used to design portable electronic devices and had loooong discussions with the battery researchers and they all pointed out the practical limits of battery technology.

      As for renewable energy, that technology is not only practical but is rapidly becoming very inexpensive due to manufacturing research in China.

      Note though that while batteries are not improving very much, there is lots of research on other ways to store energy that look very very probable and practical.

      The BIGGEST problem we have to figure out is portable energy for random transportation (cars, trucks and aircraft that follow random patterns). Train technology is well developed because trains follow a known path and can be powered with well developed technology.

  8. They will most likely retaliate against the American ppl and hurt our pockets and out a financial strain on the average American. Making it harder for us to pay our bills. Oil embargo would be the most powerfull hit that can hurt us. As far as their assets they will just be bought up with the next country that owns us, china. Maybe its time we buy back our country and nvr sell it off again with foreign investers taking our prifits before us citizens. We should embargo all foreign investments.

    • It is impossible for Saudi Arabia to create a global oil embargo.

      The usage rate for oil is DECLINING due to energy conservation technology and the switch to non-oil energy.

      At the same time that oil usage is declining, the global supply of oil is very very high.

      If Saudi Arabia were to shut down their production, Iran , Venezuela, and all the other oil producers would simply ship more at a slightly higher price.

      There would be no huge oil price spike and Iran would be overjoyed at the additional revenue.

      Saudi Arabia no longer has any power.

      They have squandered their wealth and power supporting radical religious nuts and so-called “terrorists.”

  9. Didn’t the victims of 9/11 receive a settlement from the US government? It seems to me that future retributions should be handled between the governments should a crime be confirmed. i.e. Isn’t it reasonable that any debt owed has shifted to the US taxpayer rather than to the victims?

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