Saudi Arabia Delays Payment to Contractors, Considers IOUs: Liquidity Crunch at Best | MishTalk
The collapse is happening even faster than forecast here at the lair!
For more follow the jump cut!
"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."
Indeed. The collapse is right here, right now.
"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."
This is exactly what is happening in Illinois, no revenue, and no payments to creditors. This is not working for Illinois, and it won't work for the House of Saud. Neither has a realistic way of raising their revenues, and cutting spending is politically difficult for both. Although the House of Saud could have a revolt if it implements the welfare cuts too quickly. In Illinois, the people can just move, but that is not an option for the Saudis. Who would take them?
This problem will only increase for the House of Saud. The delays do not allow the payments to catch up to the spending. They only delay payment. What this means is the House of Saud has burned through enough of its hard currency reserves that it is unwilling to burn any more. It will need to maintain some for actual necessities like toilet paper, and money printing.
This is what happens if a country does not have the money to print money:
Venezuelan Socialism strikes a pose . . .
A country without diapers, aspirin, toilet paper, even money is no country to visit, and certainly no country to live in.
Saudi undoubtedly has money for these necessities, for now, and it has oil money flowing in. The problem is the outflow is far greater than the inflow, and the outflow must be cut to match the inflow or serious consequences will occur.
The House of Saud has one trump card, the value of ARAMCO, but it is a one time deal. They can sell some of the stock, and use that money to take necessary action. Once sold, it is gone for good.
Unless the price of oil miraculously rises to well above $110 per bbl, the House of Saud is in real and long term trouble. Now we shall see if it can create a real economy in the kingdom, and get the Saudis to go to work, the real thing not "dilettante's jobs" with the actual working roles filled by indentured foreigners.
Expect Iran to begin capitalizing on this immediately. They will seek to pressure the kingdom to burn through even more cash.
Grab some corn, and a beer, this should be good!