
The Untold Story Behind Saudi Arabia’s U.S. Treasury Holdings - jonbaer
http://www.bloomberg.com/news/features/2016-05-30/the-untold-story-behind-saudi-arabia-s-41-year-u-s-debt-secret
======
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There's a book called confessions of an economic hit man -
[https://en.wikipedia.org/wiki/Confessions_of_an_Economic_Hit...](https://en.wikipedia.org/wiki/Confessions_of_an_Economic_Hit_Man)

Essentially U.S. helps impoverished nations with infrastructure and other aid,
but saddles them with debt in order to control them politically or otherwise.

The interesting part was when it came to Saudi Arabia, which had so much money
it didn't need to take on debt to develop their infrastructure. So instead
they bought America's debt as this article explains.

I lived in the kingdom from '82 - '04 which was quite an interesting time span
to have lived there. Things have definitely changed as a younger, mostly
western educated generation, returns home and social unrest cannot be quelled
with unlimited social programs anymore.

Most of the Saudi's I know now simply take american concepts/franchises and
spin them out over there. From hamburger chains to house cleaning services.
Works pretty well for them.

The most annoying thing was the weekends were on Thursday and Friday, so if
you wanted to do anything international with a bank you could only do it Mon -
Wed as their banks were closed on their weekends and then U.S. banks were
closed Sat / Sun.

I believe you can still simply walk to a certain part of town and watch an
execution, along with a couple of hands once a week there. Just you know, if
you wanted something to do on a weekend.

~~~
thekid314
I'd love to hear more. Where you married? What was it like for you spouse? If
not, what was the dating scene like in 82?

Did you travel around any? What are the most interesting parts of the country?
Did you ever make it to Mecca?

How good are you at recognizing family names and power connections? Did that
come with time?

How did people in different parts of the country view each other?

I just returned from a week in Jeddah and Riyadh. Here are some photos from a
fancy jail. Housing some of the 5000 terrorist/jihadists in a re-integration
program. Think about that, the jihadists get the nice jail, because they are
rehabilitatable: [http://www.daviddegner.com/albums/terrorist-rehab-in-
saudi-a...](http://www.daviddegner.com/albums/terrorist-rehab-in-saudi-
arabia/)

~~~
yardie
_Think about that, the jihadists get the nice jail, because they are
rehabilitatable_

This is infinitely more humane than the current US strategy of drone strikes,
"kills terrorists" never mind the collateral damage and disruption it causes.
Hell our DOC could learn a few things. Here, if you are ever once a criminal,
you're a criminal for life.

~~~
justratsinacoat
I quite agree with you that the Saudis' approach here is much less horrible!

>Here, if you are ever once a criminal, you're a criminal for life

OTOH, recidivism for sorcery must be pretty low over in the Kingdom, since the
punishment for this crime (?) is beheading (!).

~~~
jacquesm
The fact that anybody would ever get convicted for sorcery tells you all you
need to know.

------
s_q_b
You can see from their reported figures that their U.S. treasury holdings are
far too low for a sensible national portfolio. It's a pretty glaring hole, and
you know that the money is going somewhere off the balance sheets.

The question has always been how much U.S. debt exactly the Saudi's hold. This
is an interesting historical anecdote, but it doesn't provide any information
about the size of the debt, other than "much larger" than official figures,
which isn't terribly informative.

At this point, Saudi Arabia needs the United States more than the United
States needs Saudi Arabia. The OPEC cartel is broken, Saudi Arabia is running
a massive deficit, both China and Europe have economies mired in the
aftershocks of 2008 which cannot absorb the additional supply, and the United
States is energy independent.

If the Saudis are even willing to suggest selling off their dollar-denominated
debts, they must be either unfathomably arrogant or extremely desperate. My
read is the latter.

They really must want to keep those documents secret. There is no way that a
country gobbling up it's meager monetary reserves could afford the hit to the
value of those assets as they unwound them, even if they sold them off very
slowly and predictably.

Something potentially very bad for world security is in those documents.
Something that would force us into confrontation with the Saudis. Something
that could cause a run on the dollar.

There must be some extremely senior officials involved in that report. Whoever
they are, they're senior enough that they can't be made to disappear quietly
into the night.

If those pages do contain information specifically identifying financiers of
9/11, the United States might be war-weary, but you can bet that a massive
majority of Americans would demand their heads on pikes. As much as I support
the public's right to know, that's a very nightmarish scenario.

~~~
jonstokes
A few years ago I read a good book on the collapse of the USSR (can't remember
the title, too lazy to go back and find it right now). One of the major
factors that the author identified was glasnost ("transparency"), which I'm
old enough to remember being talked about on the news at the time.

Basically, his thesis was that it was the transparency, after a generation of
buildup of really nasty official secrets, that ultimately brought down the
communist regime. Once it was clear that everything people thought was
probably happening was actually happening, and worse, the whole thing just
disintegrated from the bottom up. The regime lost all legitimacy, and the
death blow was basically self-inflicted since it was the regime itself that
started to open up.

I often wonder about that in the US context. What if a lot of crazy stuff that
many people suspect has gone on actually turns out to be true, or what if it's
even worse than some of the tinfoil hatters think, and we suddenly start
finding out about it all.

I figured it would be some type of Wikileaks or Snowden-type reveal that would
do us in, if it happened. But we may actually do ourselves in with an American
glasnost that, just like the Russian one of the 80's, is done by well-meaning
people in our own government.

~~~
s_q_b
There is a theory that Perestroika and Glasnost were responsible for the
collapse of the Soviet Union, but to me that seems unlikely. The Soviet Union
was bound to collapse, because it's mandate, by definition, was limitless
expansion of communism.

When the government could no longer coordinate production, Perestroika and
Glasnost were last-ditch efforts to bring the Soviet Union more in line with
Western norms. Unfortunately, since their empire was built on force, the
loosening of the reigns only encouraged irredentist movements, until one by
one the Soviet republics fell like dominos.

Don't get me wrong. It is a major mainstream theory that the liberalizing
reforms unleashed too much information on the Soviet public all at once,
causing a massive reaction.

I do believe Glasnost and Perestroika were the cause of the collapse, but it
wasn't was because of the volume of information released. Rather, it was the
increased freedoms to organize and communicate outside the strictures of the
state. Free speech and freedom of assembly are anathema to dictatorship. Once
that occurred, it was only a matter of time before their vassal states rose
up.

The United States isn't quite as vulnerable to that type of collapse. You have
to remember the Soviet style of occupation was absolutely brutal. The murder
of anyone considered to be part of the elite class, including everyone from
factory owners to the university professors, constant surveillance, and
indiscriminate use of force were the first steps upon the Soviets gaining
control of a country. The result was subjugated nations and people, not new
provinces and citizens.

The United States doesn't have that style of federation. Its provinces are
held together by a common national identity in voluntary assembly, not a
single nation presiding over others by raw force.

I do also believe that if the United States' TS archives were ever opened,
many things suspected by conspiracy theorists would be proved correct, even
more would be proven false, and there would be countless other plots no one
even suspected.

~~~
njloof
> The United States doesn't have that style of federation. Its provinces are
> held together by a common national identity in voluntary assembly, not a
> single nation presiding over others by raw force.

Don't say that within earshot of the American South.

~~~
s_q_b
The South is the largest contributor to the national military by far, the
location of the capital, and "the South will Rise Again" folks are emphatic
but few. There still is a great deal of (often subtle) racism in the Ameican
Southeast, but little to no enthusiasm for actually leaving the United States.

------
eternalban
Bitter Lake [1] connects the Saudi windfall with the rise of global bankers as
a power. Showdown at Doha [2] looks into the growing discomfort of US with
rise of Iran and the subsequent strategic deal with SA which has lead us
directly to the current mess. The role of the Brits (always busy busy in the
shadows) is well worth looking into.

[1]:
[https://en.wikipedia.org/wiki/Bitter_Lake_%28film%29](https://en.wikipedia.org/wiki/Bitter_Lake_%28film%29)

[2]:
[http://masoudbehnoud.com/weblog/s2.pdf](http://masoudbehnoud.com/weblog/s2.pdf)

~~~
s_q_b
_the Brits (always busy busy in the shadows) is well worth looking into._

 _Sigh_ , the British are constantly furthering their own agenda in the Middle
East. Their HUMINT network is just much better than anyone else's in the
region, and their active intelligence work is informed by a much more nuanced
view of that portion of the world.

Americans like to do things from a distance, if they possibly can. Airstrikes,
cyberattacks, drones, all involve minimal risk of casualties. The Brits have
been on the ground, building their network, for far longer than the Americans.

If only they'd share more of the fruits of their labor. It's been a quarter
millennium, and British intelligence still looks down their nose at the
Americans, treating them like a rebellious problem child.

~~~
arethuza
If anyone thinks the UK doesn't have an agenda in the Middle East separate to
that of the US then you might want to consider the Al-Yamamah arms deal:

[https://en.wikipedia.org/wiki/Al-
Yamamah_arms_deal](https://en.wikipedia.org/wiki/Al-Yamamah_arms_deal)

NB - of course the UK does a lot that aligns with US interests, but they
aren't identical.

~~~
s_q_b
Yes, the United States and Great Britain have similar, but not identical
interests in the Middle East.

Their intelligence operatives are almost preternaturally good (or at least
seem that way due to their extremely precise knowledge of the Middle East.)
And unlike American intelligence officers, they have a much smaller risk of
"going native." American officers are rotated every few years to prevent this
effect, while the Brits can keep people in place for decades without the same
worry.

~~~
dkksfj
im not surprised.

every (out of 10 or so) brit ive met overseas and had a good chat with out
over the last 3 years of being an expat has been a neurotic and/or belligerent
asshole whereas most of the americans (out of 20) were able to communicate and
assimilate with the local culture.

its become such a pattern that i wont even speak english to a person with a
british accent anymore. quite a few of them are just looking for physical
fights. so strange.

and thats the end of my n=30 overseas brits and americans anecdote.

~~~
pault
My girlfriend runs a hostel and in my experience, the "Rule Britannia" types
are a (vocal) minority. No country has a monopoly on jerks...

------
aedron
The most surprising thing is the backdoor arrangements the Treasury and
Federal Reserve handily created to keep Saudi bonds purchases off the books -
through forty years!

I'm sure most people would not believe something like this could be done -
that actual governing and federal dealing is so hidden, through changing
administrations, in spite of apparent transparency, like annual reports,
budgets, hearings, and so on. It really puts a big question mark on the U.S.
democratic system, as if that wasn't tenuous enough already.

Oh, and if anyone was in doubt about the shift to Iran, this suddenly being
publicized as much as anything tells you all you need to know. It's a big
middle finger to Saudi Arabia.

~~~
mark_l_watson
+1 Couldn't agree more.

This story would have really surprised me 10 years ago but now I accept that
the Economic Royalty (or Deep Government, or whatever you want to call them)
use a lack of transparency to do what profits them.

------
FrojoS
I have a stupid question that is a bit more general than the Saudi case.
What's the advantage of selling oil and the using the dollars to buy
treasuries or other conservative investment assets? Wouldn't it make much more
sense for a country like Saudi Arabia to limit their oil production and
finance their deficit of the sales directly instead of using royalties? This
assumes that the value of oil will rather rise over time . In addition, for a
producer as large as the Saudi's, this strategy should even raise oil prices.

~~~
jeffcoat
Not so stupid: Start with the phrase "Hoteling's rule" for a century of
academic analysis of that question.

If you own an oil field, you have to balance a number of factors:

* How is the price of oil changing, relative to overall inflation? You mentioned this one.

But also,

* Are technological improvements (either increasing the total amount of extractable oil in the world, or outright oil replacements) going to dramatically lower the price if I wait too long?

* Is it still going to be my oil next year, or am I going to be first against the wall when the next revolution comes?

My (unsophisticated, outsider) opinion is that if you see oil-producing
countries selling as quickly as they can, that's weak evidence that they're
worried about the last two bullets.

------
sailfast
How is it possible to sell U.S. Treasuries in secret or in a dark market while
still providing an ostensibly transparent market for Treasuries? Those two
things seems counter to each other.

A deal with this structure as a preference seem extremely misguided, and I'm
not sure if the secrecy was requested by the Saudis or by the Nixon /
Kissinger NSC / Cabinet which was prone to secrecy for no reason. Either way,
one more crazed "feather" in their cap that greatly influenced the future of
the country for better or worse.

~~~
PhantomGremlin
_How is it possible to sell U.S. Treasuries in secret or in a dark market
while still providing an ostensibly transparent market for Treasuries? Those
two things seems counter to each other._

Let's consider equities first. A huge amount of invested money is indexed,
which basically means not doing active investing but simply tagging along with
the price discovery done by more active market participants. That seems to
work out pretty well. Not perfect, but good enough.

Why can't treasuries be the same? There's such a thing as a "noncompetitive
bid"[1], which means you agree to purchase Treasuries at the same price that
the smarter money chose to purchase at.

Right now there are low limits on how much can be bought by noncompetitive
bids. But perhaps the Saudi's just get that price for however much they want
to buy? The treasury market is _huge_ _huge_ _huge_. It probably remains
reasonably "transparent" regardless of what the Saudis buy.

[1]
[https://www.treasurydirect.gov/instit/auctfund/work/work.htm](https://www.treasurydirect.gov/instit/auctfund/work/work.htm)

------
randomname2
It's interesting how for decades, the story of Saudi Arabia recycling US
petrodollars, i.e., funding the US deficit by buying US Treasuries with
proceeds of its crude oil sales (mostly to the US), while the US sweetened the
deal by providing the Saudis with military equipment and supplies, remained
entirely in the conspiracy realm, and how with this fascinating Bloomberg
story this "theory" now becomes fact.

~~~
77ko
It seems to be that this story has been out there for decades now, and this
Bloomberg story just adds a few details.

------
marcusgarvey
Mentioned is the GAO's finding -- all the way back in 1979 -- that the secrecy
had no legal basis. Reports from the GAO, the Government Accountability
Office, are a great way to keep an eye on all sorts of wonky, provocative
investigations that are often left in the shadows.

------
SCAQTony
We pretty much put a price on our morality. Looking at the bond holders graph,
it appears we owe about a 1/2-trillion dollars to oil producing nations. It's
no wonder we tolerate tolerate gross human rights violations therein.

Sort of like that J. Paul Getty Quote: "If you owe the bank $100 that's your
problem. If you owe the bank $100 million, that's the bank's problem."

Makes me wonder if we have a similar deal with China: we sacrifice our
industrial sector (no other nation allowed that to happen) in exchange for
bond buying?

~~~
strictnein
We haven't sacrificed our industrial sector:

[https://research.stlouisfed.org/fred2/series/INDPRO](https://research.stlouisfed.org/fred2/series/INDPRO)

~~~
milcron
I think this chart helps explain why someone might think so: [http://blogs-
images.forbes.com/timworstall/files/2015/10/mfg...](http://blogs-
images.forbes.com/timworstall/files/2015/10/mfg1-e1443798818201.jpg)

The US manufactures more than ever before, it just takes fewer jobs to do so.

------
tsunamifury
The Kingdom Opening [1] will give you a fast historical overview.

[1][https://www.youtube.com/watch?v=9bHlO057DyY](https://www.youtube.com/watch?v=9bHlO057DyY)

------
known
Since 1971 OPEC is bullied to sell Oil exclusively in US dollars resulting in
friction between 1.8 billion Muslims and the West;

[https://en.wikipedia.org/wiki/Nixon_Shock](https://en.wikipedia.org/wiki/Nixon_Shock)

[http://qz.com/562128/isil-is-a-revolt-by-young-
disaffected-m...](http://qz.com/562128/isil-is-a-revolt-by-young-disaffected-
muslims-against-their-parents-generation/)

------
aedron
The massive issuance of U.S. Dollar debt to Saudi Arabia, as a result of the
deal mentioned in the OP, coincided perfectly with the abolition of the gold
standard (the dollar being linked to physical gold reserves) [1]. So right
from the start, the U.S. was purchasing oil with pieces of paper with no
guaranteed value of any sort.

[1]
[https://en.wikipedia.org/wiki/Nixon_shock](https://en.wikipedia.org/wiki/Nixon_shock)

~~~
rwmj
I'd rather have fiat currency than gold, because that would save me the time
and hassle of selling the gold and getting something I can actually spend.

~~~
ericHosick
> I'd rather have fiat currency than gold, because that would save me the time
> and hassle of selling the gold and getting something I can actually spend.

Isn't currency backed by commodities considered something other than fiat
currency?

~~~
toomuchtodo
It's called the "gold standard".

------
lr4444lr
Look at that gas station photo during the embargo: "Limit: $300 per customer".
$300 in 1974? Wow!

~~~
Luc
That's $3.00 :)

~~~
lr4444lr
Thanks - makes much more sense. I haven't had my coffee yet. According to the
Dept. of Energy that'd be about 7 gallons.
([http://energy.gov/eere/vehicles/fact-915-march-7-2016-averag...](http://energy.gov/eere/vehicles/fact-915-march-7-2016-average-
historical-annual-gasoline-pump-price-1929-2015)) Not sure what typical
passenger car engine efficiency was in those days, though.

~~~
CapitalistCartr
I remember the '73 embargo vividly. Rationing was based on license plate, even
or odd. My parent's two autos were one of each. Of course, a station wagon and
pickup truck. So my dad would get up about 4:30, put the snub-nosed .38 under
the seat, and go get in line. Those who waited until the station opened were
too late. Stations had big signs up if they had no gas.

Gas was always pumped by the attendant. When you got to the pump, he would
tell _you_ how much gas you could have. Five gallons was common.

My parents were small business owners. The embargo put their business at the
edge.

~~~
xenophonf
I don't understand why Nixon and subsequent administrations didn't push _hard_
for total energy independence after that, as in moonshot-levels of investment
into alternative energy (whether alternative sources of oil or research into
nuclear/renewables).

~~~
vox_mollis
Carter tried, and he learned the very valuable lesson that you NEVER level
with your electorate. Always feed them happy, optimistic fantasies or your
career is over.

------
coldcode
I wonder how many other secrets we know nothing about in the US like this.

------
ohashi
Bloomberg site is godawful. It reloaded the article on me 3 times while
reading it. Great way to rip off advertisers with more pageviews and piss off
readers.

------
chiph
I think we always knew that they were buying a lot of government debt, this
just makes it official and puts some numbers to it.

------
known
And believe me this deal/collusion has created friction between 1.8 billion
Muslims and the West;

