A bill now going through Congress would chip away at Saudi Arabia’s sovereign immunity defense against claims that they abetted the 9/11 terrorists, which they apparently did. The Saudi government, with its tender commitment to due process and human rights, has threatened to retaliate by selling its hoard of US treasuries.
You’d have to be pretty naive to tremble at this. For every sale there has to be a purchase, so the Saudis have to find buyers for these bonds. Presumably the buyers will be those who hold close substitutes (relatively risk-free sovereigns issued by other secure states), who can be induced by a small premium to rebalance their bond portfolio in a dollar-denominated direction. Meanwhile, the Saudis will likely take the cash and purchase these other, non-US, sovereigns. The result will be a slight temporary decrease in the price of treasuries and perhaps a slight easing in the value of the dollar, which would actually be good news for the US economy. (Although my understanding is that most of the actual accounts in which the Saudi-owned treasuries are held are located in London; correct me if I’m wrong.) If the Fed had any concerns about the one-time selling pressure against treasuries it could quantitatively ease by buying a bunch of them itself.
Of course, maybe this is desperation disguised as bluster. With the fall in oil prices, the Saudis may need to liquidate some of their holdings to keep their race horses properly groomed and fed. Why not portray this is a weapon to prevent disclosure of its past deeds?