U.S. Economic Vulnerability In Face Of Saudi Dollar Threat: Financial Advisors' Daily Digest

by: SA Gil Weinreich

Summary

What would happen if the Saudis dumped $750 billion in U.S. assets?

Numerous SA contributors see a decelerating economy though they differ in what that means for investors.

But one thing’s for sure: You’ve got two weeks left to grab a government-guaranteed 1.64% annual rate on I-Bonds.

Politics and economics, foreign policy and U.S. elections seem to be coming to a head in a very fraught way. Saudi Arabia has issued a threat to sell three-quarters of a trillion dollars in its U.S. dollar portfolio if the U.S. Congress passes legislation that would enable lawsuits against Riyadh for its role in the 9/11 terrorist attack-a subject believed to be elaborated upon in 28 pages of the 9/11 Commission report never released to the public. The Obama administration opposes the legislation, and while Senate candidate Hillary Clinton was lukewarm to the idea, the candidate came out in support of the measure Sunday, ahead of Tuesday's crucial primary in New York, where most victims of the terrorist attack lost their lives.

SA contributor Ian Bezek doesn't think the U.S. will permit Saudi legal exposure and believes the Saudis are bluffing in any case. (See also his fascinating commentary on Brazil's current instability.)

My own take: We've seen this sort of threat work a generation ago when the U.S. objected to the British invasion of Egypt in 1956. The Treasury threatened to sell its sterling and the Brits judged it a bad time to take risks in light of the country's post-war economic vulnerability. The U.S. today is economically wobblier than in the past. But the separation of powers, not to say the New York vote, would seem to indicate the possibility of a collision between economic, foreign and judicial policies. Overall, this whole uncertain episode seems to heighten feelings of vulnerability.

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