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 Nothing is being "withdrawn" from the economy.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.
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.
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.
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.
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.
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.