The US Needs a Sovereign Wealth Fund Like a Fish Needs a Bicycle

Early this week, President Trump signed an executive order that instructs the Treasury and Commerce Departments to begin the process of establishing a sovereign wealth fund (SWF) in the United States. They’ve got 90 days to come up with a plan to create the fund.

As CNBC reports, the US Treasury Secretary, Scott Bessent, is fully on board:

We’re going to stand this thing up within the next 12 months. We’re going to monetize the asset side of the U.S. balance sheet for the American people. There’ll be a combination of liquid assets, assets that we have in this country as we work to bring them out for the American people.

I haven’t seen a lot of media coverage yet, but what I have seen has been pretty awful. A roundtable of pundits on CNN chuckled at the notion of a SWF being established in a country that can’t even balance its budget. “Where will the money come from?”

That’s the same way the New York Times covered the proposal, writing that SWFs are “typically found in countries in much better fiscal health than the United States…But the United States runs persistent, and widening, budget deficits, and it is unclear where the Trump administration could find the money to seed such a fund.”

First of all, let’s remember that President Trump actually does—or did—understand why the federal government, unlike individual states, never needs to worry about “finding the money.” Watch for yourself.

It was 2020, and Trump was responding to a question about a $6.2 trillion fiscal package (emergency COVID spending plus day-to-day operations). The reporter might have been confused about where the money was coming from, but Trump wasn’t. “The beautiful thing about our country is…we can handle that easily because of who we are—what we are—it’s our money…it’s our currency,” he explained.

The Power of a Sovereign Currency

Understanding what it means to issue a sovereign currency is at the core of Modern Monetary Theory (MMT). If you’re new to MMT, click this link and watch Professor L. Randall Wray explain. The bottom line is that a currency-issuing government, like the United States, never has to worry about “finding the money.” As Wray explains, the money gets spent into existence when Congress authorizes a budget and the payments are made. (Incidentally, it works that way in the UK and in other countries with sovereign currencies as well.)

If you’ve been following MMT for a while, you’ve probably heard Warren Mosler refer to the U.S. as the “scorekeeper” for the US$. His point is that we shouldn’t think of a currency-issuing government as “having” or “not having” any dollars. The scorekeeper maintains the spreadsheet by crediting and debiting bank accounts as the government spends (adds) and taxes (subtracts) dollars from the various “players” in the game. When there’s a Congressional appropriation for $6.2 trillion, the government creates $6.2 trillion. It literally spends the money into existence. That’s the power of a sovereign currency.

So Much Confusion

It’s hard to see why anyone who understands how a sovereign currency works would be pushing a sovereign wealth fund. Even if it became “one of the biggest funds” in the world, as Trump envisions, it wouldn’t give the federal government any spending power it doesn’t already have.

Just as the NFL understands that the Superdome doesn’t need a storage facility to accumulate a hoard of points ahead of Sunday’s Super Bowl, and Delta Airlines knows it doesn’t need a strategic reserve of #SkyMiles in order to dole them out at will, President Trump knows—or knew—that the federal government can conjure money into existence on an as-needed basis.

Yet the current administration apparently thinks it needs to plant a little money tree in the form of a SWF in order to grow investments in our economy. From the NYT:

Howard Lutnick, Mr. Trump’s pick to lead the Commerce Department, suggested that the government could take a stake in companies it does business with.

“If we are going to buy two billion Covid vaccines, maybe we should have some warrants and some equity in these companies and have that grow for the help of the American people,” he said, standing beside Mr. Trump at the White House.

That demonstrates a remarkable lack of understanding in the monetary system and the mechanics of government finance. I guess they think it sounds smart or innovative or maybe they see it as a vehicle to warehouse conflicts of interest and corruption.

Whatever the reason, Trump likes the idea. His executive order instructs others to determine whether Congress would need to pass new legislation in order to create such a fund. I expect it would, and that just begs the question: Why not just have Congress authorize the spending and then spend the money the way we do it now?

Trump isn’t the first U.S. president to take seriously the prospect of establishing a SWF. The Biden administration also explored the idea. I said then what I’ll say now: You’ve got a sovereign currency; you don’t need a sovereign wealth fund.