Wealth Fund, Non-System

US Sovereign Wealth Fund

President Trump recently announced an executive order to create a US Sovereign Wealth Fund. I don’t think this is necessarily a bad idea, but I don’t think it’s a particularly good idea either.

Norway’s sovereign wealth fund is the world’s largest thanks to surplus revenues from its oil and gas industry. Typically sovereign wealth funds are established in countries that are socialist or a monarchy. Establishing a government run investment fund in the US is about as anti-capitalist and as far from American small government values as you can get. SWFs are prestigious for their size. I’m sure this prestige and marketing value is why Trump is interested, but the US is already financially prestigious so that doesn’t make sense to me either. We already have various commodity reserves and niche government run investment funds like In-Q-Tel. We also hold gold reserves and confiscated Bitcoin.

Back to how we plan to fund this, we already have assets but we don’t have surplus capital to put into a new sovereign wealth fund. Singapore is unique in that it funds its SWF with an annual budget surplus which it has had for most of its history. By comparison, the US has intentionally over-levered and over-spent since inception to accelerate investment and growth. Even our repeated banking crises are by design.

We also don’t need a SWF to invest in innovation since the top US public companies and our asset management industry already does that for us. By comparison Saudi Arabia invests in innovation via its SWF to diversify away from oil, its only source of wealth. I’d guess the US SWF ends up as the US Bitcoin reserve, but we’ll have to see how it evolves.

Monetary Systems

This article from American Affairs has been stuck in my head since I read it a few weeks ago. The title is, “America, China, and the Death of the International Monetary Non-System.”

Shifting monetary systems is like shifting tectonic plates. They move slowly but have profound implications over time. Over the past few decades, China’s persistent trade surplus has resulted in large holdings of US Treasuries. China artificially keeps its currency low so that the world continues to buy their goods. There are signs that China is struggling economically and that may result in a reduced ability to maintain their cheap currency indefinitely.

This artificial exchange rate that leads to the buying of US Treasuries has pushed US interest rates lower which has led to increased US debt levels and increased asset prices (based on lower discount rates). Following Covid supply chain disruptions there is a renewed interest in re-shoring and friend-shoring, bringing manufacturing back to the US, which also impacts China.

I’m not sure where this leads but it is disruptive and it supports the idea that US and other global interest rates will remain higher for longer rather than revert to the lows of the previous decade.