The most important thing today is not what’s going on between the Democrats and the Republicans. It is what’s happening between Saudi Arabia and Washington.
As you know, both political parties are having primaries in New York today. These are important and I’ll get to them in a bit.
But first, I want to focus your attention on an issue that came to the fore in a story over the weekend in the New York Times — one that should be of immense concern to all Americans, including the one who ends up being the next president.
The Times reported prominently on its front page on April 16 that Saudi Arabian officials have told the Obama administration and members of Congress “that it will sell hundreds of billions of dollars’ worth of American assets if Congress passes a bill that would allow the Saudi government to be held responsible” in US courts for any role in the 9/11 terrorist attacks.
Many of the hijackers who flew planes into the World Trade Center were Saudis. But the 9/11 Commission exonerated the Saudi government and that country’s top officials of having anything to do with the attacks.
Here’s the punch line: After being threatened by the Saudis, the White House lobbied Congress to block the bill. In other words, the blackmail is working.
I’ve been expressing concern for years that too much of America’s $19.3 trillion in debt was held by unfriendly foreign powers and that someday the US would lose its ability to make decisions for itself.
When you run up deficits like America has, however, you borrow money wherever you can.
But, frankly, I thought the threat would come from the Chinese — the biggest lenders to Uncle Sam — who could easily make demands like those lobbed our way by the Saudis. Every time we lecture the Chinese about human rights violations, I laugh — all they have to do is sell US assets and suddenly American officials will not only shut up, but apologize.
And the Chinese still might play that card. Heck, if Brazil wants us to help with its financial struggles, all it has to do is threaten to sell the $247 billion in US government bonds it owned as of February.
Ditto for Japan, Ireland, Caribbean nations, Germany, France and any other of a number of countries that hold a substantial amount of US debt and want to pressure us for one reason or another.
If the Saudi’s blackmail works, others will get in line with their demands.
Why do these threats work? US interest rates are at the level they are today not solely because the Federal Reserve pushed them there. Rates are low in large part because foreigners — governments and private investors — have been willing to gobble up enormous amounts of US bonds.
If even one of those substantial buyers suddenly becomes a seller, the US would need to find someone else to buy its debt. And that would be difficult, especially with the world’s economy struggling and when a lot of old debt is being dumped.
Short of the Fed suddenly doing a quantitative easing-style purchase of these bonds — which would be extremely inflationary and enormously dangerous — interest rates would rise. And the increase might get out of control and severely damage the economy.
Whether any lawsuits against the Saudis are justified or not, Washington’s cave-in sets a bad precedent.
So, how should the Obama administration have responded to the Saudi threat? That’s simple and I’ve explained this before.
The Saudis and other OPEC nations are very vulnerable to a drop in oil prices. Oil revenue is all the Saudi economy runs on. Ten years ago, the US had no control over oil prices, but that changed when a new technology called fracking greatly increased our ability to produce energy.
Fracking, together with the weak worldwide economy, is the reason motorists have been getting such a break on gasoline prices for the past year.
So the scene should play out like this: the Saudis threaten to sell US debt and then Washington threatens to subsidize not only an increase in energy production, but also more fuel-efficient autos.
The US goal in this scenario would be to get worldwide oil prices down to $20 from the current level of around $39.
We might need the cooperation of the Saudis in the bond market. But they need our help in the oil market.
Now, what about today’s primaries?
Whether Bernie Sanders beats Hillary Clinton in the Democratic primary or not, and whether Donald Trump trounces the other Republican candidates or merely wins by a lot, this much is clear:
America is undergoing a political revolution.
People are tired of the same old politics.
They are tired of Wall Street — with the approval of Washington — playing games with commodity prices.
They are tired of massive amounts of government debt ruining the future of this country. They are tired of Washington and the Federal Reserve pretending for the past eight years that the economy was getting better when it clearly wasn’t.
They are just plain tired. If that weren’t the case, Trump would still be making TV shows and Sanders would still be an unknown.
It’s good to cleanse the political system every few decades. It makes people feel like they actually live in a democracy.
