What Happens When Saudi Arabia Turns Off the Cash Spigot?

I am going to trot out an esoteric formula from advanced quantitative finance.

Ready?

A lot of money

minus

A little bit more than that

equals

Less than zero.

Counterintuitive, I know, but it’s true.

To take a random case study, the Saudi royal family has a number of valuable properties — fine art, vacation homes, military hardware, etc. — and among the most valuable of their properties is the country of Saudi Arabia. Saudi Arabia is mostly composed of sand, but it also includes some oil — 15% of the world’s reserves, at least according to the IEA. This has made the Saudi royal family fantastically wealthy.

On the liability side of their balance sheet is the population of Saudi Arabia. A long time ago, the House of Saud could claim some legitimacy from having conquered the peninsula and united the various tribes. This happened surprisingly recently — we’re used to thinking of kings conquering rival kings as a middle-ages sort of thing, but around the same time FDR was wrapping up his first Presidential campaign, King Abdulaziz bin Abdul Rahman was putting down the last of the Ikhwan rebellions and proclaiming the Kingdom of Saudi Arabia.

Like all countries, the Saudi government gets its legitimacy through procedural continuity with the founders, through the endorsement of the clerisy…