Courtesy of Mish.
Liquidity Crunch or Worse
Saudi Arabia burnt through its reserves faster than anyone thought.
In signs of a huge liquidity crunch, at best, the country has delayed paying contractors and now considers paying them in IOUs and tradable bonds.
In retrospect, the Saudi threat to dump US assets looks more ridiculous than ever.
Please consider Saudi Arabia Considers Paying Contractors With IOUs.
Saudi Arabia has told banks in the country that it is considering giving contractors IOUs to settle some outstanding bills, according to people with knowledge of the discussions.
A projected budget deficit this year is prompting the government to weigh alternatives to limit spending. Contractors would receive bond-like instruments to cover the amount they are owed by the state which they could hold until maturity or sell on to banks, the people said, asking not to be identified because the information is private.
Contractors have received some payments from the government in cash and the rest could come in “I-owe-you” notes, the people said.
The government started delaying payments last year to prevent the budget deficit from exceeding $100 billion after the oil slump.
Beyond a Liquidity Crisis
Deficits don’t shrink if you delay paying the bills. Deficits arose because more money was spent than collected.
On May 17, the Senate Passed a Bill Allowing 911 Victims to Sue Saudi Arabia.
