Thread by @dampedspring

"Trillions" of Foreign Pledges of USD investment that Trump controls 101.

Many of the tariff deals contain murky promises, other commitments are also being made by Middle East sovereign wealth funds and private sector entities. The idea that Trump controls these investments

Is also an important factor. It's all high drama and shiny object stuff. But I care more about the mechanics. The mechanics of a foreign USD investment in USD assets are the same as any other investment. The big question is how does one get the USD from whom and how is it raised

Let's start with a simple example. The Saudi's (directed by Trump or otherwise) make a U.S. investment. What can they invest in? There are only two investments possibles buying physical things like land, factories, infrastructure and buildings or buying stocks and bonds.

Unfortunately the term FDI which I would like to use is hung up with "control". Which muddies things. So I will use "real" investments vs "financial assets"

One thing one must expect is that the Saudis aren't "gifting" the money. They expect evidence of ownership a contract

or share ownership or an indenture etc. BUT even if it was a gift the mechanics remain.

How does a Saudi get the money? That question is answered in a few ways

1. They Sell USD assets already held
2. They sell ROW assets and buy USD with the proceeds

3. They accrue USD by selling US stuff over time
4. They borrow USD from a bank pledging sovereign assets as collateral or tap whatever unsecured credit lines they have
5. They borrow Riyal from banks and buy USD
6. They print Riyal and buy USD

That's pretty much all the ways any of these countries can fund the investment they allegedly promised to Trump.
If you think I'm missing one or more please help but it's a pretty good chance that the 6 I mention cover your suggestion if you follow the money.

Let's break them down.
1. Presumably you can see that selling a USD asset they already own is not a new
Investment in the U.S. If Trump wants the investment in T-Bills then Saudi will have to sell something longer term to fund the purchase and that has impact
If he wants it

In factories the Saudis can fund by selling U.S. treasuries. That has impact BUT net it's not new investment.

2. If Saudis sell ROW assets they already own and buy USD with the proceeds someone has to sell a USD asset to raise the USD to exchange the currency with the Saudis.

Once again there are temporary market impacts of all these flows but NO net new investment in USD Assets

3. This is tricky. The U.S. trade deficits provide Saudi with USD. That can fund new investment in U.S. assets BUT there would have to be an INCREASE relative to existing

Trade imbalances to provide and Increase in investment that Trump is describing or else the "new investment" is just the same old same old trade deficits/capital surplus equation that has been happening for decades. Ironically tariffs are designed to make

trade deficits fall! Which would lead to relative disinvestment in U.S. assets.

4. If they borrow USD from a bank that is 💯 new investment. Private sector banks leveraging up their balance sheet is good old money printing. The question is simply how much capacity does the

private sector banking system have for a particular country or its private sector entities as credits and how much credit is available overall? The answers to this question are likely found in bank leverage and capital adequacy. Could the banking system print 1TN of new money

to high quality (even sovereign credit guaranteed) credits. Probably. Maybe even 2TN. BUT that borrowing would cause a tightening in credit conditions for all folks on earth that want credit. It will have consequences. BUT it does fund the investments "promised"

5. Borrowing from a local bank in local currency except perhaps in Japan is limited given the sizes and constraints of the local banking systems but it is money printing. But then the next step is to buy USD which to raise the USD sold the seller either has to sell

USD assets like in option 2 or borrow USD like in option 4. So 5. Offers some
Capacity but devolves into either 2 or 4. But does diversify and spread out the "credit risk"

6. Saudi can issue government bonds and have its central bank buy them which "prints money"

That can devolve into 2 or 4 OR the Saudi central bank can swap its riyal with the Fed to USD which will turn the riyal printing into USD printing by the Fed and 💯 fund the investment. What's cool about the mechanics is we can see what is actually happening to fund these

Alleged promised investments

My expectation is most of it is 1. And had no net impact on USD investment but if it is 4, 5.
or 6 then we will see it as leveraging up of US, ROW banks, or Fed Swap lines. Each have their own specific impact and even though it is

Net zero impact on USD has a big impact on relative pricing of USD assets and a
Flow through to U.S.economic conditions. If Trump wants the Saudis to swap out of stocks to treasuries that's bad for growth assets. if the opposite it's bad for yields.

If it's all nonsense of

Double counting already planned or mechanical trade deficit stuff it's mostly just noise