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Saudi bank warning: U.S. debt ratio same as Italy’s

Special to WorldTribune.com

ABU DHABI — Saudi Arabia has warned the financial community of a
decline of the U.S. dollar.

Saudi Arabia’s National Commercial Bank said the debt burden of the
United States has reached the same ratio of Italy, deemed a default risk.
In a report, the Jedda-based bank warned that the downgrade of the U.S.
credit rating from triple A status would reduce energy demand and prices, a
move expected to harm the Saudi kingdom.

“Foreign central banks maintain a large share of their foreign currency
reserves in U.S. treasuries because it is the deepest and most liquid bond
market,” the report said. “But, international funds that limit their
investments to AAA-rated bonds may dump the U.S. holdings, causing the U.S. dollar to depreciate. Yet, mutual fund investment guidelines do retain some flexibility regarding the handling of such matters.”

The report, titled “The Standard and Poor’s Downgrade of U.S. and Its
Implications on the Saudi Economy,” however, said the Gulf Cooperation
Council state could withstand the decline of the U.S. dollar. NCB said Saudi Arabia wielded a large reserve to ensure government programs over the next few years.

Saudi Arabia is said to hold about $492 billion in U.S. debt. The
report said Washington was certain to honor its obligations, and that the
United States could print money at any time.

“Therefore, holders of U.S. Treasury bills like Saudi Arabia should not
be concerned that they may not receive interest payments on U.S. bonds.” the
report, released on Aug. 10, said. “However, the value of those payments
will essentially decline, given the fact that with more dollars in
circulation due to the printing presses, the value of each dollar by
definition declines.”

The report urged Riyad to move its assets from the United States to
other countries. Still, the bank expected investors to continue to support
the U.S. currency amid the decline of the bond markets in Italy and Japan.

“It is true that political system in recent months has demonstrated
gridlock, diminishing its political will, but the status of the U.S. dollar
as the global reserve currency will continue to provide the U.S. with a
significant advantage no other economy enjoys,” the report said.

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