Luckily this was good for me, otherwise I’d be pissed:
+1
Exactly how significant would the damage be if the Saudis do decide to unload their treasuries stash? By my level 1 understanding, it would drive the yield up making our debt more expensive. That’s the issue, yes? Also, TF, what do you mean this was “good for you”?
I was being semi-facetious. To me it’s irritating that the government does these type things that have very significant impacts on the country in secret. Granted we have the benefit of hindsight (cue Palantir with"I don’t see the problem here.") but I think this helped us along the path of negligent fiscal policy.
Now we’re potentially over a barrel and they hold the threat of dropping the hammer whenever they feel like it. Typical politics got us short term band aid in exchange for much greater potential future damage.
While I agree with the spirit of what you’re saying, I don’t think the Saudi position is so large that it will move markets unless they did a single day dump, at which point it would be a period of acute volatility rather than “having us over a barrel”.
Huh… I see. this is “good for TF” because it validates his worldview 
^^ Agree. I don’t see what the big deal is (regarding the selling treasuries by others). If they decide to dump their bonds onto the market, then others will pick them up, probably at a good price. The bonds have already been issued (coupon and principal are going to be paid); doesn’t matter who owns them.
Am I missing something?
Now, making secret sales as the article spotlights, I don’t know what to think about that.
i think it’s safe to assume the official stats under report actual holdings as alluded ot in the article. Maybe there would be plenty of buyers to pick up the slack. maybe not. the uncertainty alone may be enough for the U.S. to look the other way when they fund terrorists. or look at it this way. it must be worth it to censor any implication of the saudis in 9/11 othwerwise why would they do it?
the whole point of the article is that the U.S. needed the Saudis to bail them out when inflation and deficits were souring. now they are a major holder and are threatening to dump their holdings. you think that would have no effect on the treasury market?
It goes deeper than that though. I think it’s time for bchad and I to have our bi-annual petrodollar warfare debate.
While the Saudis did “bail us out” this solidified dollar hegemony and basically started the secular decline in US interest rates.
No doubt USD hegemony isn’t as secure as it was 30 years ago (no Euro to compete with back then, obviously) but it’s still the reserve currency of the world and (people will shake their head but this actually matters a great deal) the desired currency of drug lords and warlords the world over. As long as this persists, and the US will do everything in its power to make sure it does, the Saudis can’t/won’t dump (all) their Treasurys.
In short, what would they replace it with? You think you can just go out and buy $750B worth of Euro bonds? Good luck with that. The US has the government bond market cornered. Just like China before them, the Saudis are just blowing hot air.
^that is all true, but the other side of that coin is that the government has taken advantage of the situation with severely negligent fiscal policy. Nothing, including dollar hegemony, lasts forever particularly when it is abused.
…it will be interesting to see what happens when the king of debt is elected. maybe he’s right and we hold all the cards, maybe not.
But in some ways, isn’t it better that the government did this out of the public eye? The guy who brokered this deal is far more financially competent than the average person. A public decision will be subject to PR pressure by ideologically biased and financially ignorant voters. Look at how that Lazzard guy was blocked from being Treasury Secretary because of his ties to banks, for instance. Good financial decision making ability is a liability today. In fact, bad policy is usually a result of pressure by ideologically motivated voters.
Agreed.
Whoa! This is the breaking news in this thread. The U.S. is no longer running a deficit and has no need for new issuance??
I wrote nothing of the sort. Those are separate issues.
^ So the rates do matter. If yields on bonds are increasing, new issue yields increase too, along with costs to the American taxpayer.
^Right… but is the amount of treasuries owned by the Saudis enough to change the yield in a significant, and more importantly, lasting way. Let’s say some large owner of Google stock decides to dump all the shares just to be malicious. Sure the price would suffer in the short term, but in the long term fundamentals will bring it back to intrinsic value. The Saudis selling all the treasuries with malicious intent does not change the risk profile of the debt. The price will go back up. The yield will go back down… probably in short order, yes?
Oh…the US has been secretly colluding with and supporting the biggest terrorist sponsoring state in the world while supposedly carrying out a war on terror? Nothing to see here, move along.
i wonder how many investors this type of analysis has wiped out.
^ok, cute come back TF. However it does not answer my question. Now I’m really curious. Who can tell me how this sell of would go down and why? As of now, I don’t see the problem.