Dangerous Ambitions of the Bankrupt

Sovereign Wealth Fund and Bipartisan Folly

It's true that bipartisanship in the United States is quite unusual during election time. But as I said in a recent essay on the issues that really count, both parties are in many ways just two sides of the same coin.

Don't believe me?

Enter the proposed sovereign wealth fund, yet another (not so subtle) mechanism to siphon wealth from the public and into the hands of the financial and political elite.

This is from the Wall Street Journal:

White House officials say they have been working for several months on the design of such a fund. The fund would provide capital to advance strategic interests such as early-stage technology and energy security as competition with China heats up. 

The disclosure comes after former President Donald Trump in an appearance last week called for a sovereign-wealth fund to “invest in great national endeavors for the benefit of all of the American people,” such as infrastructure and medical research.

So apparently the Biden administration was so ticked off by Trump that they were like, “Not so fast! We've been working on this same thing for quite a while now. That's our idea!”

And here's the man in charge of this “work”: U.S. National Security Advisor, Jake Sullivan.

Source: White House, Photo by Adam Schultz (via Wikimedia Commons)

Word is, Sullivan's been burning the midnight oil on this plan for months. He's meeting with economic experts, hashing out the big questions: how big should this fund be, who's going to run it, and what's the leadership going to look like?

Not Norway or Saudi Arabia

While all these questions are being discussed, the experts on both sides are completely ignoring the one that truly matters: why does America need a sovereign wealth fund at all?

The answer is, it doesn't.

Let me explain…

When people talk about why the U.S. needs a sovereign wealth fund, they're almost always pointing to Norway and Saudi Arabia and their supposed successes. Saudi Arabia's Public Investment Fund manages over $925 billion, while Norway's Government Pension Fund Global tops the charts with an impressive $1.7 trillion under management.

But here's what often gets overlooked: both Norway and Saudi Arabia have economies heavily dependent on oil and gas revenues, and both have been working hard to diversify beyond that.

Norway's Government Pension Fund, for instance, takes the surplus wealth from its oil industry and puts it to work elsewhere. Saudi Arabia, too, runs its own fund using oil money to try and achieve the same thing. A key component of this strategy is Saudi Vision 2030, the brainchild of Crown Prince Mohammed bin Salman.

The bottom line is that both of these nations are raking in a ton of oil money and trying to invest it in other things, with their sovereign funds footing the bill.

That’s not the situation in the U.S. at all. Sure, America has been the world’s largest oil producer since 2018, but oil makes up only about 2% of its economic output, while it’s 40% for Saudi Arabia and 20% for Norway. And that’s because the U.S. has something those two don’t: a large, highly diversified economy.

Note: We also have much more corruption in our political class than they do, but you probably already know that. There's not much incentive for political corruption when losing your head is a real possibility (at least in one of these countries).

So right off the bat, the main reason those two big sovereign wealth funds exist doesn’t really apply to the U.S.

Empty Coffers & Dangerous Ambitions

But there’s another, even more important argument against it, which billionaire Mark Cuban recently touched on. Now, I’m not a fan of the guy, but I think he hit the nail on the head when he said:

I hate the idea of a sovereign wealth fund. If the government had a surplus, maybe. With a deficit, it makes no sense at all.

Surplus? What surplus? The U.S. is practically broke at this point.

Unlike the oil-rich kingdoms, the U.S. is not sitting on a budget surplus; it owes more than $35 trillion. That’s the current debt of the U.S. government—$35 trillion, about 129% of America’s Gross Domestic Product (GDP).

Do you have any idea how much of your income taxes went toward interest on this huge debt last month?

According to the latest Monthly Statement of the U.S. Treasury (page 9) gross interest paid in June amounted to $92.3 billion. That’s 67% of the $137 billion the government collected in income tax receipts (page 4).

Put simply, 67 cents of every dollar you paid in income tax in August went to cover interest on the debt. It’s insane.

Being as broke as they are, where will they get more money to fund a sovereign wealth fund?

Nobody has a solid plan.

Trump's idea to use extra cash from tariffs sounds good on paper, but in reality, foreigners will just pass most of those costs onto American consumers.

After months of supposedly diligent work, Jake Sullivan has even less to show. Reports say Team Biden may be considering raising money from a pool of investors - a kind of public-private partnership, if you will.

This eerily echoes the Federal Reserve's creation in 1913. Remind me, how well has the Fed managed boom-bust cycles, bank failures, inflation, or currency stability? Spoiler alert: it hasn't. This total failure created far more problems than it solved.

You'd be foolish to expect anything better from this sovereign wealth fund idea, no matter how nice the gift wrap.

Ultimately, this sort of thing is about consolidating power away from you. The overlords don't trust you "peasants" with your own savings and investments. So, they'll create this "very strategically important" fund and tax your hard-earned money to finance it, claiming they know better.

Unfortunately, governments only excel at waging war, taxing wealth, and keeping you poor, so it's not going to benefit anyone.

Regards,

Lau Vegys

P.S. Okay, I take that last line back. It would benefit some actors: mainly Wall Street, hedge funds, and international bankers. They wouldn't manage this fund for nothing, you know… and they'd make a killing doing it—just like they have since the Fed's founding.