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Forget China, Saudi Arabia Could Demolish The US Dollar
Source: Internations.org
You probably have heard this numerous times before; the Chinese position in US Treasuries is outright dangerous and China could single-handedly force the US Dollar to weaken quite substantially. Whilst that’s definitely correct, it sure looks like one is overlooking the impact the low oil price has on the public finances of Saudi Arabia.
As the country is mainly depending on exporting its oil to keep its government budget balances, the Kingdom has been hit extremely hard by the 60% drop in the oil price as an almost certain budget surplus was suddenly converted in a huge budget deficit. In fact even during the darkest hours of the Global Financial Crisis, not a lot of countries saw their government budgets dip into the red by in excess of 20%!
Source: The Guardian
The main problem is the fact Saudi Arabia had been using an assumed oil price of $100/barrel to balance its budget and as the current oil price is less than $50/barrel, a lot of government officials will be scratching their heads. A huge budget deficit also means the Saudi’s will be scrambling to get their hands on cash and earlier this year the country has completed the first debt offering in almost 10 years!
But that won’t really help much. Raising a few billion dollars in government debt won’ offset a lot of the expected $150B deficit and the officials in Riyadh will continue to target the country’s sovereign wealth fund (well, it’s not ‘officially’ a sovereign wealth fund, but just an investment division of the central bank) which is the third largest in the world and had in excess of $750B in assets before the oil price started to fall.
Source: tradingeconomics.com
The Saudi Arabian wealth fund was an excellent performer as it yielded an average 11% return over the past 10 years and this might be the country’s best bet to get out of the current oil crisis. But that’s also where the US Dollar comes into play.
And zooming in:
Source: International Monetary Fund
The original purpose of the fund was to make sure the Saudi economy remained relatively stable, and the assets could and should be monetized to soften sudden economic shocks. To serve this purpose, the country’s cash was invested in low-risk and highly liquid investments, such as US Treasury bills. It’s impossible to know how many hundreds of billions Saudi Arabia has invested in US debt securities as the American government doesn’t want you to know how which gulf country owns how much of the US debt (Government Accounting Office, 1979). But as the Saudi’s have virtually pegged their currency to the US Dollar, we would dare to bet in excess of half of the fund’s assets are held in US debt securities as it fits the bill in terms of a) liquidity, b) ‘safety’ and c) currency protection.
Even if you’d assume Saudi Arabia would be able to raise $30B per year in government debt, it still has a $120B gap to cover and the only decent solution would be to start selling US debt. This could put additional pressure on the financial markets as it won’t be easy to absorb this kind of selling.
That’s yet another reason why the Federal Reserve won’t be able to increase the interest rates anytime soon. Saudi Arabia’s gradual selling could be taken care of by the market but imagine the USA would start to increase its interest rates as well. A snowball-effect isn’t out of the question at all, and the pressure on the government bonds would be even higher and instead of a stronger Dollar, the US Dollar would be weaker. It will be extremely interesting to see more updates from the Saudi’s to see how much of the US treasuries it has already sold and how it plans to tackle its government deficit.
Because no matter what happens (excluding a sudden jump in the oil price), in 4 years from now, Saudi Arabia’s foreign reserves will be depleted. And that will most definitely fuel additional unrest in the Middle East.
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The Fed will buy the debt, expand the balance sheet. All fixed!
The other side of this arguement is while the dollar is nothing to brag about as the world reserve currency the dollar has a big advantage and is still the most liquid and the safest of the four major currencies. In an unstable world liquidity becomes very important. If the global economy will become totally unhinged this gives the dollar a big advantage.
Almost more important than the Fed's interest rate is the value of the dollar in comparison to other currencies. For years I thought the dollar would succumb to market forces and predicted its demise yet it remains the best of the four major currencies by far. More on why the dollar may soar because it remains the best or only real option in the article below.
http://brucewilds.blogspot.com/2015/08/dollar-about-to-soar.html
AS PLANNED......
The House of Saud will accidentally fall within a few months of them agreeing to sell oil to China in Yuan
Fuck the Arabs. Why can't we just grow cannabis and use it as a bio-fuel? Why can't we be like the Hillbillies and make White Lightening to power our motor vehicles? We would be independent of oil from the Middle East. Then we could also get stoned, drunk and laugh at the dumb Muslim assholes! Yeh and fuck the government because we would no longer have to pay excessive fuel taxes! I think it is against our values and morally repugnant to be dependent on anyone.
Woodgas ala WW2: www.driveonwood.com
This guy absolutely cracks it on off-grid 'tech'. Does the same process as the drive-on-wood guys, but adjusts the burn process to produce biocrude, deisel and petrol and gas. Gotta see the wood-powered chansaw!:
Mr Teslonian
https://www.youtube.com/channel/UCVP1PTBbRGpmTQE1oQx8xNw
your values are not nyc/dc values
Do me even have any values under our War Crimnal Government, for fuck's sakes?
"Because no matter what happens (excluding a sudden jump in the oil price), in 4 years from now, Saudi Arabia’s foreign reserves will be depleted. And that will most definitely fuel additional unrest in the Middle East."
Count on a huge spike in oil prices. Remember the US has tried to secure the surrounding areas, especially Egypt, along with the Suez Canal and ports. The efforts have been fumbling at best and have made ALOT of enemies. Saudi has never really "liked" the US or Britain from the early days of ARAMCO. If there is even a small puddle of oil the US has tried to control it so they can keep the defense/mercenary busy. The days of "sweet" crude are about over and the world will have to move on to filthier "sour" sources.
Saudi does not need the US as China and India would be happy to work with them. Europe will align more with Russia and the whole other side of the world will look to places other than the US. Heaven help the people of central and South America and it's still a crap shoot how it will turn out for the people of the US.
Re "Because no matter what happens (excluding a sudden jump in the oil price), in 4 years from now, Saudi Arabia’s foreign reserves will be depleted." Nonsense. The whole purpose if running the price of oil below 50.00 a barrel was to kill US shale oil and Canadian tar sands oil. Which is occurring as we speak.
Actually, the real target was Putin.
The scalp of Stephen Harper, whose wondering aloud if Islam was as peaceful a faith as it claimed to be had made him more trouble to the banksters than he was worth, was a consolation prize at best.
actually putin is in on it
Nonsense, Secular Investor . Missed that one by a mile. Unless you believe the US media.
And, Secular Investor, I'd really appreciate it if the tiny graphics used, would expand on a click; rather than go to your website.
Who needs $USD? After the cash ban you can just add 1's and 0's as needed. The King knows and has been invited to the party.
The same solution that has been enacted since Lehman; print, lie, cheat, and steal...just increase the amplitude & frequency as needed.
They will find that their FRN USD does not buy what it used too...
"That’s yet another reason why the Federal Reserve won’t be able to increase the interest rates anytime soon."
Exactly.
Without the House of Saud's having easy access to Uncle Sugar's printing press, the House of Saud are finished, and so is Uncle Sugar as an important player in the Middle East.
Nobody in DC or New York in a position to prevent such a thing wants that to happen.
Incidentally---Riyadh's implicit credit line at the Fed is in the ballpark of what the banksters still owe the Jews in compensation for the property confiscated or destroyed by the Nazis. If Israel were the country with a USD750 billion sovereign wealth fund, the wonders the Jews might have worked with such wealth simply staggers the imagination.
Don't worry, the Saudis are our friends
The Saudi's are pissed at the US because we stole ALL their gold via the Swiss and this is dangerous because we do not like it when the retaliation is selling oil in anything but USD and the Saudi's will turn if they haven't already.
That’s yet another reason why the Federal Reserve won’t be able to increase the interest rates anytime soon." They will not raise them for many years anyway.
Wow I used to really believe this pessimmison porn.
Its getting out of hand
when Saudi demolishes the USD, they demolish themselves. wasted space. move on
What makes you think so? After all, the only true money in today's world is oil. They could sell oil internationally for whatever currency they choose. True, they signed up to a protection racket with the US, the US provides military protection and the Saudi's demand dollars for their oil, yet, today's military protection is not what it used to be. The Saudi's can clearly see that the US sux as a partner and they really have no reason why to continue to cuddle the US. Look at Syria. A simple task; take out Assad, and the US screwed it up so badly that Russia stepped in as the savior of MENA and is bitch slapping US assets all over the place. So why would they be demolished?
Say, uh, Vlad, would you buy oil from us in rubles?
Da, if you dump moar USTs.
Can we get an S400?
Perhaps our export version...
We have ports too Your warships can tie right up.
Osama strikes agian , but seriously the FED has destroyesd the dollar the facist little shits in government need no help.
When WTI is in the 20s then.....
Washout coming.
RIPS
per barrel might be cheap but fuel prices at the pump, in my location at least, haven't changed. Fuel bowsers paying down debt? Oil price minor part of retail prices? Any ideas?
Because they can?
If "At least half" of it was invested in UST's, kindly explain how the fund generated "11% average annual return over the last 10 years"? I'd like to know what the balance was invested in because I would like a piece of that action myself....
The next BIG hit to USD will be when the Saudis agree that China, its largest customer, can pay for oil in CNY. With the siuation in Syria, the (Sunni) Saudis might postpone that event. But on the other hand, given the ineffectual US posturing, they might just switch sides to Russia/China on the understanding that SaudiA will be "Protected" from Iranian invasion. In which case, even a deal with Iran might be possible to mutual benefit after the shale industry has been destroyed? Interesting times ahead....
saudi gave it up way back when....kissinger sent to make them an offer they couldn't refuse
they are a minor partner in nyc/dc inc