Friday, May 20, 2016

Let Saudis Sel Their US Interests

By Micah Halpern
I've Been Thinking:

Saudi Arabia has threatened to pull out their US investments and sell their ownership of US companies if the United States permits 9-11 victims to sue the Gulf oil state.

This is a serious threat and people are rightfully taking it seriously.

And yet, it is also an empty threat and would prove to be a silly move.

Saudi Arabian interests in the United States total about $750 billion. Selling all that, over a period as short as a few months, will cause be a huge loss to the Saudis. Actually, good estimates say that if the Saudis sell their US assets, they will take more than a 50% loss on the sell. That would mean $750 billion will melt away and be reduced to something just over $300 billion. That is a huge loss - and a colossal failure.

The Saudi own $117 billion in US treasury bonds. Even if they liquidate all the bonds overnight, it will not have a huge impact. The daily treasury market is about $500 billion. China sold off their bonds in order to raise cash and it did not impact the market.

If Saudi Arabia did choose to try to sell their interests, there would be a long line of interested people excited about picking up those investments at a price way below market value. Many of those new buyers may actually be Americans.

If the Saudi follow through with their plan, it will backfire and the result may actually be better for the United States. 

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