a reply to: liejunkie01
It depends on what the assets are since they threatened to sell off assets and divest (which is basically "un-investing" in projects). I'll give a few
lame and completely fictional examples to try to make the point.
If they sold off stocks and bonds from companies, that wouldn't really hurt our economy except maybe to temporarily drop the prices of those specific
companies. However, selling off stocks and bonds in those companies would also imply that they weren't going to invest any more our companies in that
industry, which could hurt new startups and other companies that are looking to raise cash through selling more stocks and bonds.
If they sold off govt bonds & other forms of govt debt, that would temporarily hurt our govt's fundraising efforts. State govts, local govts, and our
federal govt all sell debt to raise cash. Most of the buyers are large institutional investors like investment banks, hedge funds, sovereign wealth
funds, insurance companies, and some major colleges. Well, Saudi Arabia owns about $138 billion worth of US debt, so if they sold it all at once, it
would temporarily flood the market with cheap US debt. Flooding the market would both decrease the prices and make it harder for our fed govt to sell
its new debt (as in, why buy new debt when you can buy existing debt at a fraction of the price?). But just like in the previous example, the real
threat would be the implication that they're not buying anymore US debt, which would make it harder for the US to raise money.
If they divested/"un-invested" in current businesses and ventures, that could shut those specific ventures down. So if they are part owners in a small
business, that business would suddenly lose one of its financial backers, which may cause the business to fail. If they were one of the financiers in
a specific business venture (like major real estate ventures), those ventures would likely collapse if they couldn't find other investors to pick up
the slack. This aspect is even more worrying now that the Saudi govt has done this massive crackdown on its powerbrokers, since the #1, #2, and #5
richest people in Saudi Arabia are among the detained people (the richest one is a major institutional investor).
A real example is the city where my Dad lives. A lot of Kuwaiti and Saudi citizens lived there and the local college has/had a scholarship program
with the Saudi govt. The Saudis & Kuwaitis paid good money to the college for the program, and even more importantly for the local economy, their govt
gave pretty nice grants to their citizens for going to the school. The students would then rent some of the higher cost apartments & homes and the
younger males became known around the city for buying brand new sports cars with the money. Needless to say, these helped the local economy a lot. But
no lie, right after Trump was elected, at least half of the students left the country within 2 weeks. I don't know if the scholarship programs are
still ongoing, but I know that the college started undergoing a budget crunch afterwards.
These are just some examples off the top of my head, so there can always be more. But the important thing is figuring out specifically what assets
they'd sell off. And it also will depend on if this $750 billion figure includes existing contracts, meaning they could threaten to cancel billions of
dollars worth of defense contracts and other deals.
ETA: If it also includes closing accounts in American banks, that would have the same effect as any other customers closing their accounts. In theory,
banks borrow money at a small interest rate from customers' accounts and then they lend or invest that money at higher interest rates. That's how they
make their money, by borrowing $20,000 at 1% interest from customers' "savings accounts" and then lending that $20,000 in a car loan for 15% and
pocketing the difference.
But in reality, banks can lend 8 to 10 times more money than they have in their accounts, meaning they'd borrow $20,000 from the customers' accounts
and could then turn around and loan out up to $200,000 in car loans, credit cards, etc. Some banks will even use that $20,000 that's in a customer's
account as collateral for an even larger loan for themselves lol (basically using customer accounts as collateral for larger loans).
This scheme works well when customers keep their accounts open and are content with accepting the bank's interest payments. But once customers pull
their money out, banks have to find a way to replace those funds in order to back their other deals. If they can't find other funds and too many
customers want to pull their money out of the bank, the bank risks failure since it literally doesn't have those funds (aka "a run on the bank").
These "runs" won't work with banks that affiliated with the Federal Reserve system though, since the Federal Reserve can literally print as much money
as its member banks need.
Either way, if the Saudis pulled a good $50 billion or so from Wall Street accounts, it would hurt those specific companies but probably wouldn't have
an effect on the rest of us.
edit on 14-11-2017 by enlightenedservant because: (no reason given)