More On Why A U.S. Sovereign Wealth Fund (SWF) Is Not A Good Idea
The National Debt is $36.2 Trillion. If you include unfunded liabilities associated with Social Security (approximately $28 Trillion) and Medicare (approximately $43 Trillion), the U.S. has combined National Debt and Liabilities of approximately $107 Trillion. That is 3.7x Debt to GDP. The U.S. is amid a severe debt crisis that is eroding the value of the Dollar and doing grave damage to the American standard of living.
I applaud the Federal waste and fraud removal effort that I have read about as conducted by Elon Musk’s Dept. of Govt. Efficiency (“DOGE”), but it is only window dressing. Federal outlays from Social Security (21% of YTD fiscal spending, Oct. 2024 - Jan. 2025), Medicare (15%), and Health (13%) accounted for 49% of fiscal 2025 spending YTD. When you include National Defense (14%) and Interest (13%) owed on the National Debt, those categories account for 76% of YTD fiscal spending. The U.S. does not have the money to spend on entitlement programs and a bloated, outdated military. The U.S. has already spent $2.4 Trillion fiscal YTD and has racked up a deficit of $840 Billion over that period (deficit is up 58% year-over-year).
Job #1 should be digging the U.S. out of debt.
No taxpayer capital should be allocated toward funding a sovereign wealth fund. Per Treasury Secretary Scott Bessent, Treasury would monetize assets on its balance sheet to provide initial funding for the SWF. For example, if Treasury was to sell some of the property on its books, those proceeds should go directly toward paying down the National Debt rather than be allocated to a SWF.
It is certain that the National Debt will grow because Entitlement spending outpaces GDP growth. It is not certain that a SWF will earn a positive ROIC for U.S. taxpayers.
The U.S. Treasury should focus 100% on shrinking the National Debt. To allocate intellectual capacity, energy and resources toward monetizing Treasury’s assets and toward managing an SWF is to divert it away from Debt reduction - which ought to be the sole mission.
“The Government could game the system and make the SWF work for the American people”, you may say. For example, Treasury could purchase Amazon shares and direct DoD to award Amazon’s AWS unit a large contract, thereby sending shares higher. AMZN shares could then be sold at a higher price and the proceeds could go to pay down the National Debt. There are a number of problems with this thinking.
First, the National Debt is not static. The National Debt will continue to grow because Entitlement spending is growing faster than GDP. There is no guarantee that the AMZN trade, net of cost, will outpace National Debt growth. Nor is there any guarantee that it will generate a profit (that is why equities are referred to as risk capital).
Second, the Federal Government should not compete with private capital. The Federal Government should not be a player in private markets. Yet unfortunately, Treasury and the Fed are the biggest players not only in the capital markets, but also in the U.S. economy, which is supposed to be a private, free economy, but clearly is not. The Fed and Treasury have bid up asset prices since 2020, from stocks, to houses, to automobiles to food prices. There is a reason why the Dollar continues to lose purchasing power versus most every asset, good and service. That reason is the inflationary fiscal and monetary policies of our Federal Government.
Third, what will be the cost associated with administering the SWF? There will be an administrative, hard dollar cost. The U.S. cannot afford additional, unnecessary expenses.
Fourth, an SWF creates an opportunity for moral hazard. Bad actors in the Federal Government will be tempted to misuse the fund’s capital. It would not be the first time that Government officials have abused taxpayer Dollars as Mr. Musk and his DOGE operation are discovering firsthand.