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08/08/2005 Archived Entry: "King Fahd's Passing"
IT ISN'T THE KIND OF NEWS MOST AMERICANS NOTICE
but the death of Saudi King Fahd may have more dramatic implications than most people realize. Guest blogger Silver saw this interesting item.
Fahd has been little more than a figurehead for years, disabled by strokes and other ailments. His half-brother Crown Prince Abdullah has been de facto ruler and is now officially King. We are repeatedly assured that the transfer of power has been peaceful and that Saudi policies remain unchanged.
But Abdullah has announced that he intends to return $360 billion in foreign investments made over the past 18 months to Saudi Arabia. Even by bloated US fedgov standards, $360 billion is a lot of FRNs. It's over 3% of the US GDP, the value of all goods and services produced by the economy in a year. Moving such large amounts can cause serious problems: abruptly dumping the $60 billion Saudi holdings in fedgov bonds would probably collapse the bond market. Unrolling 18 months worth of investments is a huge effort, and on this scale it is a striking repudiation of Saudi policy.
Saudi official policy was to support the US government in the Middle East, and to work with the FED to stabilize and protect the value of the dollar. Oil is currently priced in dollars on the world market, and many speculate that the final, unforgivable offence of Saddam was to threaten to make a market for oil priced in Euros . One can only wonder what new Saudi policies will follow this massive financial restructuring.
Posted by Silver @ 04:42 PM CST