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Originally posted by: alanleroyII
Just suppose the Saudis dump their US assets. What would the impact be on our economy?
1. Bond prices would decrease with a corresponding rise in interest rates. How high would they go? That depends on whether others panic and follow suit.
2. Equity prices would decrease. How low would they go? That depends on whether others panic and follow suit.
3. The value of the dollar would decline creating inflationary pressure. How much? Unknown.
We know these are the impacts of an asset dump. We just don't know how severe that impact will be.
Worst case scenario: Stock Market Crash combined with Crushing Interest Rates and High Inflation.
Best case scenario: Slightly higher interest rates, a stock market correction and a slightly weaker dollar.
DonDiego opines alanleroyII's analysis is essentially correct.
However, DonDiego surmises many of the predictions are likely to transpire even if the Saudis don't "dump their bonds".
And the severity of the impacts would likely be greater than "normal" because the Fed, the US Central Bank, has become the major holder of US bonds in an ever-more-difficult effort to forestall an economic downtown. It's the sort of difficulty which arises when a Government and Central Bank collude to prevent a down-cycle in a "free economy". Down cycles are necessary to weed out the inefficient/unnecessary/derelict participants in such an economy; the result of a delayed down-cycle is usually a worse down-cycle than would otherwise have occurred.
DonDiego suggests one needn't concern oneself with the fate of the Big Bank bankers; they'll be the first to protect themselves, . . . as will the "in-the-know" politicians.
However, one might start thinking about effects on one's own lifestyle with the possible combination of high interest rates and less purchasing power for one's dollars.
And one needn't worry about poor old DonDiego either; he pretty much got out of the market 8 months ago, except for his single largest holding; and it has risen 130% since New Years.
And DonDiego is comfortable not residing in a large city; a denser population seems to lead to greater unpleasantness in such situations.
Everything comes to an end; and at least in the US something new comes along, . . . so far.
Maybe Senator Sanders' comrades will come up with a solution next time, . . . like everything one needs is "free" and they'll tell everyone exactly what they need.
