The Sovereign Wealth Fund: “Yes, but inflation . . .

Monetary Sovereignty posits two fundamental laws:

1. A Monetarily Sovereign government can infinitely write and modify the laws that create its sovereign currency. Thus, it never unintentionally can run short of its sovereign currency.
2. Inflation, the general increase in prices, is caused by shortages of crucial goods and services.

These laws are not well understood because they do not apply to the monetarily nonsovereign private sector, where dollars are scarce and individual prices can be determined in various ways, not just by shortages.

For more detailed explanation of the two laws see: Monetary Sovereignty, the key to understanding economics and Stimulating economic growth without inflation.

We’ve begun seeing more articles about a “sovereign wealth fund,” most recently in the following article: “The case for a U.S. sovereign wealth fund”, by Stephen Prince.

Professor Prince was a professor of cinema studies at Virginia Tech. He was renowned for his groundbreaking scholarship in film history, aesthetics, and technology, publishing 16 books during his career.

His works explored topics like film violence, digital cinema, and auteur studies, including books on Akira Kurosawa and Sam Peckinpah. Prince was also celebrated for his insightful audio commentaries on classic films and his dedication to teaching and mentoring students.

Based on his history, perhaps he can be forgiven for not understanding economics, federal finances, inflation, or Monetary Sovereignty.

Here are some excerpts from his article, together with my comments:

Sovereign wealth funds are usually the strategic resources of petrostates with budget surpluses, not diverse, debt-heavy economies like the United States.

His use of the terms “budget surpluses” and “debt-heavy” immediately tells us he falsely believes a Monetarily Sovereign government’s finances should be like yours and mine, where long-term solvency requires income to exceed spending.

He does not realize that:

• Federal deficit spending adds growth dollars to our economy.
• The federal government never can run short of dollars
• Taxpayers do not fund federal spending, which is instead funded by federal money creation.

Even if the federal government collected zero taxes and issued zero T-securities, it still could continue spending, forever.

That should change. Instead of managing our nation’s balance sheet with a spendthrift’s short-term outlook, the U.S. should think like an investorand put its assets to work deliberately.

No, the Monetarily Sovereign U.S. should not think like a monetarily nonsovereign investor. Quite the opposite.

President Donald Trump’s directive to establish a sovereign wealth fund could add immense firepower to our economic arsenal, converting national wealth into strategic and financial advantages for all Americans. And right now, we don’t have the luxury of holding our fire.

It’s not clear what “immense firepower” he thinks we could add nor what “fire” we can’t hold. Again, it seems the professor doesn’t understand the differences between federal finance and personal finance.

America is at risk of losing the technological  race—and going broke in the process. In quantum computing, China outspends us four to one. Japan has emerged as a global leader in robotics.

It is impossible for our Monetarily Sovereign government to unintentionally run short of dollars. It cannot “go broke.”

(Statement from the St. Louis Federal Reserve: “As the sole manufacturer of dollars, whose debt is denominated in dollars, the U.S. government can never become insolvent, i.e., unable to pay its bills. In this sense, the government is not dependent on credit markets to remain operational.” From their publication titled “Why Health Care Matters and the Current Debt Does Not” from October 2011.)

Germany is now ground-zero for advanced manufacturing. And as our competitive edgeerodes, our debt mounts.

The U.S. paid $882 billion in net interest in FY 2024—more than we spent to fund the entire Department of Defense. The real risk isn’t creating a sovereign wealth fund—it’s pretending we don’t need one.

No, the real risk is pretending the federal government’s finances are like a state or local government’s finances.

Capitalism has long been America’s greatest asset. It’s time to wield it patriotically.

Now, it’s “patriotism” to not understand economics?

A U.S. sovereign wealth fund’s success would come down to four crucial questions: Where does the money  come from? How is it invested? Where do the returns go? How is it managed? Critics say we can’t have a sovereign wealth fund without a budget surplus.

Why would “critics” say that? We rarely have a budget surplus.

The last time we did (under President Clinton), it caused a recession, and every depression in U.S. history has followed a federal budget surplus.

The reason: A federal budget surplus removes dollars from the economy.

But America already owns substantial assets: land, mineral rights, spectrum licenses, and intellectual property.

We just don’t normally monetize our ownership in them for the direct benefit of our citizens. Instead, we treat our assets and their revenues as disposable income, while countries like Norway prudently invest their oil wealth.

Norway does not act like a Monetarily Sovereign entity. It artificially limits its spending to oil revenues. This is not prudence. It is a misunderstanding of Monetary Sovereignty.

The oil royalties charged by the Department of the Interior are at below-market rates. By charging what Texas charges for the same activities, we could generate an incremental $8.5 billion. Add expanded renewable energy leasing, and we could boost that to $10.1 billion.

A Monetarily Sovereign government neither needs nor uses income. All federal spending is funded by the ad hoc creation of new dollars.

All income, including the taxes you pay, are destroyed upon receipt by the Treasury.

But the key isn’t spending that extra money—it’s borrowing against it. With congressional approval, current AAA municipal bond rates of 2.9% and $10.1 billion in annual revenue would allow the U.S. to support up to $225 billion in initial funding.

But, why borrow dollars when we can create dollars and never run short?

Bondholders get paid from resource revenues, not investment returns. By separating funding risk from investment risk, the fund could make bold bets on America’s future, without risking its present.

The implied belief is that the U.S. federal government can run short of its own currency.

The government is excellent at identifying strategic threats.

For example, the National Security Commission on AI has spelled out how our adversaries might overtake us within a decade. But these reports end up unread with the same toothless conclusions like, “Congress needs to appropriate billions.”

While we wait for our government to act, other governments, like Saudi Arabia and Qatar, are deploying trillions into the technologies and markets our future depends on.

A U.S. fund would let us turn government threat assessments into investment theses, allowing us to shape these critical technologies to our national advantage.

Why would the wealth fund managers be depended upon to do what Congress and the President refuse to do?

The success of this fund should be shared with its citizen shareholders through investment accounts for every newborn American.

Giving money to Americans is a great idea. We often have discussed Social Security for All and Medicare for All. We could do it tomorrow without the intermediary of a wealth fund. We have something far better than a wealth fund. It’s called Monetary Sovereignty.

Finally, a U.S. sovereign wealth fund, like the Federal Reserve, can operate independently with a clear mandate: maximize returns while advancing strategic interests.

Professor Prince seems to believe this management would have better knowledge and understanding of our strategic interests than Congress and the President.

The following can only be summarized as the innocence of a person who has spent too much time in the film industry.

We could start by creating a board of America’s best talent. Think: Mitt Romney and Bill Gurley working alongside Condoleezza Rice and Eric Schmidt.

Meanwhile, the fund’s day-to-day operations would be managed by world-class investment professionals who are paid competitive salaries and evaluated against clear benchmarks.

Critics will argue the government can’t or shouldn’t manage capital, that markets do this better and don’t violate free-market principles.

These are fair concerns—but they are also outdated. A sovereign wealth fund is not a step toward socialism; it is a step toward sovereignty.

It would put America’s markets to work, creating common wealth for the common good. It would help us stay technologically competitive with our rivals without raising taxes.

And instead of passing debt to future generations, we’d be giving them assets. That way, they’ll have a real stake in America’s success.

No, actually, you’d be growing the federal debt. But rather than the current debt being backed by the full faith and credit of the United States, it would be backed by depreciating assets, unavailable to future generations.

In 1776, just months after Adam Smith published The Wealth of Nations, Thomas Jefferson wrote the Declaration of Independence.

These twin revolutions—American democracy and modern capitalism—were born together. Now it’s time to reunite them.

Huh? This unites democracy and capitalism?? How?

Our rivals are wielding their wealth to shape tomorrow without American leadership. We can no longer watch from the sidelines. Let’s build a sovereign wealth fund—and build it so we can win.

Thankfully, as the prose became ever more purple, the article ends.

Curious, I asked ChatGPT, “What do you think of a sovereign wealth fund?” I was pleased to find that it understood the concept of a sovereign wealth fund and Monetary Sovereignty.

GPT:A sovereign wealth fund (SWF) can be a useful tool for nations with excess financial resources, but its relevance and effectiveness depend on the country’s monetary system.

From a Monetary Sovereignty perspective, a sovereign wealth fund is somewhat redundant for monetarily sovereign nations like the U.S., U.K., Canada, Japan, or Australia.

These nations do not need to “save” money in a fund to finance future spending because they issue their own sovereign currency without financial constraints.

Unlike resource-rich nations that rely on SWFs to manage surplus revenues (e.g., Norway or Saudi Arabia), a monetarily sovereign government can always spend as needed to achieve economic and public policy goals without relying on investment returns from an SWF.

If a monetarily sovereign nation sets up an SWF, pretending it needs to “save” money for the future, it  reinforces the false idea that government spending is financially constrained.

Norway uses its SWF because its government does not issue its own currency freely—it pegs spending to its oil revenues. That might makes sense under their self-imposed rules, but for a country like the U.S., an SWF is unnecessary.

The U.S. government doesn’t need an investment fund to finance spending—it can just spend directly to meet public needs.