The Untold Story Behind Saudi Arabia’s U.S. Treasury Holdings

The funny thing about debt is that it's looked at as a fundamental force of nature and not from a political economic relationship. The debt is owed to someone. Someone, somewhere is getting the interest payments. The duty of a debtor to pay the lender is enforced politically. The creation of fiat currency is controlled by the central bank, etc.

The Chinese realize this. On a political basis, they regularly buy up and write down bad loans with money the government electronically prints itself. This wouldn't work in our democratic system because politicized debt forgiveness is too obvious of a way to buy votes. Instead we have the fed buy bad debts from the banks in a form of politicized bad investment forgiveness, but the debts never go away and the taxpayer is partially stuck with the bill and hence austerity in the form of government bailouts.

It's what I was taught in an intelligence course.

1. Do you have an idea of whether their increased production has affected the fracking production in the US? Would they, in the long-term, have success in making the US more dependent again?

The theory that a lot of people had was that the Saudis are attempting to push down oil prices. My family owns some property on which they're conducting hydraulic fracturing (not my call, I campaigned to have the practice banned in the state.)

There's still faith that oil prices will rise again, and investment, while reduced, is continuing. To the extend that the Saudis lower production, US facilities are already built now, and most of the mothballed facilities can come back online in a year or so.

2. As I understand it, the Saudi Royal family derives part of its legitimacy through the backing of the religious leaders of their country, and the Sunni world at large - but many of the Saudi family itself are actually more progressive than the conservative country. Is there any chance that they want to or could push back against the Wahhabist ideology that seems to spout from the gulf peninsula?

In brief, yes, and the liberalizing push from the royal family is growing stronger with time. Saudi Arabia has gone through great pains to construct a world-class university. Built in an isolated area to avoid the interference with the religious police, KAUST has an endowment of ~$20 Billion, which puts it monetarily on par with each of H/Y/P and is twice the combined endowment of Oxford and Cambridge.

KAUST has partnerships with prominent United States universities, including several in the Ivy League, and is headed by the former University President of Caltech. Most instruction is in English, men and women study side-by-side, and freedom of discussion is encouraged. There are also plans to construct a series of model cities along the coastline, following much a similar model.

Most recently, Saudi Arabia underwent a fairly silent transition of power to Prince Salman. Prince Salman is a modernizer, who very much understands that Saudi Arabia needs to invest its oil revenues into creating an economy that is not dependent on oil exports. He has the blessing of the King and the Allegiance Council, has consolidated power through as the official head of the defense, economic, and oil ministries.

A few months ago, King Salman issued a series of liberalizing decrees widely seen to be the result of Prince Salman's influence. [0] So there is hope for the Kingdom yet.

3. " We have very little knowledge of their nuclear program" How is that possible? It'd seem as though their supplies of nuclear weapons are precisely the types that we want to be aware of at all times?

We know they have a nascent capability being developed south of Riyyhad. The reason we have little insight is that American HUMINT in Saudi Arabia is woefully weak. We do not know whether they have already have a weapon, whether they've miniaturized it, or if they don't, what the breakout time for them to develop one is.

When the cube was seized in 1979 and the Muslim world thought the US was to blame, we got the glimpses of what reactions could be. We'd truly see the Middle East in flames.

Agreed, and unfortunately the only way to douse those flames would be a mobilization effort the Western world can scarcely afford.

[0] http://www.nytimes.com/2016/05/08/world/middleeast/saudi-ara...

> There is no reason the U.S. should be allies with the House of Saud.

There is a very good reason:

1) The US needs a stable oil supply

2) The US needs global stability, for which the world needs a stable oil supply.

3) A stable oil supply requires a stable Persian Gulf region.

4) Leverage and influence with the most powerful nation in the Persian Gulf (with the possible exception of Iran, an enemy of the U.S.), is very valuable and perhaps necessary to stability in the Persian Gulf.

That arrangement worked for decades, and look what's happening now that it fell apart.

Recently things have changed a little: The US has become less dependent on Persian Gulf oil due to domestic supplies; there is/was a global glut of oil, making the world less dependent on the Gulf; US-Iran relations improved somewhat; and Saudi religious fundamentalism has gone from being their internal problem to a global problem.

Also, US policy changed: The US became a cause of instability in the Persian Gulf with the invasion of Iraq and the reckless disregard for the need to find a stable, political outcome for that country (no planning for occupation, etc.). Also, the Arab Spring created a dilemma: Support democracy or support short/medium-term stability? At times the US chose democracy, further undermining current stability (democracies would of course be more stable in the long run, but getting from here to there involves a period of instability).

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