Liquidity Crunch or Worse
Saudi Arabia burnt through its reserves faster than anyone thought.
In retrospect, the Saudi threat to dump US assets looks more ridiculous than ever.
Saudi Arabia has told banks in the country that it is considering giving contractors IOUs to settle some outstanding bills, according to people with knowledge of the discussions.
A projected budget deficit this year is prompting the government to weigh alternatives to limit spending. Contractors would receive bond-like instruments to cover the amount they are owed by the state which they could hold until maturity or sell on to banks, the people said, asking not to be identified because the information is private.
Contractors have received some payments from the government in cash and the rest could come in “I-owe-you” notes, the people said.
The government started delaying payments last year to prevent the budget deficit from exceeding $100 billion after the oil slump.
Beyond a Liquidity Crisis
Deficits don’t shrink if you delay paying the bills. Deficits arose because more money was spent than collected.
Obama threatens a veto. Meanwhile, Saudi threatens to dump $750 billion in U.S. securities and other American assets if the bill becomes law.
Does Saudi Arabia even have $750 billion. Color me skeptical.
Saudi Arabia’s bluff that it would sell US assets if the Obama signed the bill seems more ridiculous than ever.
There is no “nuclear” economic threat by Saudi Arabia or China as some have proclaimed.
Mike “Mish” Shedlock