In July 1974, a former bond trader turned politician named William Simon boarded a private plane out of Andrews Air Force Base for a two-week tour of Europe and the Middle East.
Simon had been Treasury Secretary for all of two months, and the government had a problem.
Three years earlier Nixon had cut the dollar loose from gold. Then came the Arab oil embargo, led by King Faisal of Saudi Arabia after the 1973 war, and the price of oil roughly quadrupled.
The real business was a four-day stop in Jeddah, where Simon’s job was to talk the Saudis into financing America’s deficits.
The deal was simple: Saudi Arabia plows its oil dollars into US government bonds, i.e. Treasuries, and in return America buys the oil, sells weapons to the Saudis, and guarantees the kingdom’s security.
Faisal said yes, on one condition— nobody could know.
So the Treasury let the Saudis buy bonds in special sales that never showed up in the official totals.
It stayed secret for 41 years, until Bloomberg pried the numbers loose in 2016: the Saudis held $117 billion of US debt, and a former Treasury official said the real figure was probably double.
