I call them as I see them. I have thoroughly enjoyed the first two weeks of the Trump Administration and I hope it keeps going right until he leaves office. Wouldn’t it be funny if his last act in office was an Executive Order that limited Presidential power to the original meaning in the Constitution?
Trump signed an executive order authorizing a Strategic Wealth Fund (SWF) for the US. It’s a terrible idea. Wyoming Republican Senator Cynthia Lummis wants a Strategic Bitcoin Reserve (SBR). It too is a terrible idea. I hope
has enough sense to push back on it.There are similarities in why both are terrible ideas. There are also unique aspects of both that make them singularly terrible ideas.
The United States is a capitalistic decentralized government. Enshrined in our founding documents are individual liberty and private property rights. Doing that enables innovation and free enterprise.
Both the SWF and the SBR oppose those core principles. They involve taxpayer dollars being aggregated, with a single decision-maker making the decisions. The money that would flow into either of those entities ought to be used to either pay down existing federal debt or cut government taxes and fees.
Even if they are well-meaning in the beginning, both will become politicized and tools for grabbing and enforcing power. Imagine pitching the SWF and having a business that was at political odds with whatever administration was in charge. It reminds me of pitching the state of Illinois for venture dollars and them telling me my partner wasn’t “Hispanic enough” because she was Cuban, not Puerto Rican.
Proponents will say that a SWF will “make more money” and we will be able to “pay down more debt quicker,” but they ignore the risks of losing everything. They also ignore decades of government boondoggles in which the government spent money and lost everything.
It wouldn’t matter to me if the greatest investors of all time led it for no fee or carry. Those investors will tell you they don’t have perfect records.
The best way to pay down debt is to incentivize private profits and higher levels of income. The way to pay down debt is to lower regulations and institute a consumption tax. The best way to pay down debt is to cut spending.
This brings up another point. The government can’t ever invest money on behalf of citizens. Governments can only spend taxpayer dollars. Anytime an elected official mentions the word “investment” when they are actually talking about spending is disingenuous.
This is true even when we are doing perceived “good”. If the government grants money to a cancer researcher, the government isn’t investing. It’s spending.
Where did the government get the money to give to the cancer researcher?
Taxes from citizens.
Debt which is a tax on the future earnings of citizens
Printed money, which is inflationary, and a tax on the current earnings and assets of citizens. It goes without saying that to print money, debt has to be issued.
This brings up another point. Sec of Commerce Howard Lutnick mentioned that perhaps the US government should have received warrants when it purchased the Covid vaccine from Big Pharma. What a terrible statement!
Please think of the economic disincentives for behavior if the US government-owned equity warrants on the Covid vaccine. The government owning equity in private enterprises is sinister at best. That’s why I also detest the “public-private partnership” model advocated by a lot of people. Let the private sector be the private sector and government do what it is chartered to do by the Constitution.
The SBR is totally misplaced. Lummis is pandering for donations. For her, it’s the current thing and a place to stake out power in Congress. First, Bitcoin was designed to be a private network. It’s also a commodity, a piece of software, and a medium of exchange. Sure, the network databases and blockchains are searchable, traceable, and relatively transparent compared to fiat currency. But, they aren’t backed by any government, military, or any other legal structure. It’s only valuable because the network of people who own and operate in the Bitcoin network says it’s valuable. I can be outside of the network, and if the network goes down, it has no meaningful effect on my life.
People will point to the Strategic Oil Reserve (SOR). We need a SOR. What if we are suddenly attacked? What if there is a natural disaster? Clearly, oil has a use. It is central to living daily life.
Fortunately, Trump is against issuing a digital dollar. That is a sinister idea as well. Having a digital dollar controlled by government with the ability to turn on and turn off the ability to spend it is something out of science fiction.
I have personally invested hundreds of thousands of dollars into Bitcoin companies. I see the potential for Bitcoin but right now, it’s just potential. Without anything built of note yet, Bitcoin is not any different than a Beanie Baby or a Tulip Bulb.
has a super interesting chart on Bitcoin. Here it is.
Every rally in Bitcoin has a less steep slope than the next. That is a sign that momentum and fervor are waning. Speculative fever can only last so long. Eventually potential has to become results. On the Capitalisnt podcast, Nobel Prize Winner Eugene Fama said Bitcoin should go back to zero. You can quibble with him, but he might not be wrong. Imagine having an SBR that was worthless.
There is not one thing that the Bitcoin Bros have created that is needed in daily life. There is not one thing that the Bitcoin Bros have created that is needed in daily business-to-business life.
The Bitcoin Bros might counter that during the Biden Administration, they were hamstrung with regulations and pursuit by the SEC/DOJ/Treasury etc.
They have been building since 2008. They have nothing to show for it.
I am very happy with a lot that Trump has done. But, these ideas are ripe for the dustbin of history. He is human and he isn’t perfect. Not every idea is a good one.
Please tell people not to support them. I am happy to testify in front of Congress as to why they are terrible.
I worked at Cantor Fitzgerald for many years. During that time I had some key insight into Howard Lutnick; he was an egomaniacal doofus. He was a tennis instructor before he wooed Bernie cantor into signing his firm over to him. Bernie’s widow sued Howard for the move, as Bernie was on his death bed and Howard shoved documents in his face-
Employees were exploited and intimidated. Howard lorded over the firm like he was a royal.
Now I have heard 9-11 changed Howard. He lost thousands of employees and his own brother, and if he had been in the office that day, he too would have died. That would certainly change most men-
But I don’t trust anyone with power of the magnitude a SWF would create-
Look at social security- FDR created a “piggy bank” for all of us, and now it’s possibly going to bankrupt us all…..the road to hell is paved with good intentions. Our government needs to stick to the basics and not be so high flying with their plans.
We actually have a sovereign wealth fund in the US. It's the State of Alaska's Permanent Fund.
Bit of history: The gigantic Prudhoe Bay oil field was discovered in 1968 and the state passed a constitutional amendment in 1976 creating the Alaska Permanent Fund and allocated 25% of state energy revenues to the APF.
In 1980, the State of Alaska created the Alaska Permanent Fund Corporation to oversee the APF and began paying dividends in 1982 ($1000 to every Alaska citizen).
The APF distributes annually 5% of its average value over the last 5 years to be allocated to state government (makes up 40% of budget) and dividends to citizens.
That allocation between the state budget and dividends has become a political controversy as the allocation is set every year. In 2024, it was $1702 per citizen.
The APF holds its wealth in the normal instruments: stocks, bonds, and other equities. The fund is $76B today and grows from both revenues and investment return.
In this instance, the source of funding is substantial and regular.
The State of Alaska has less than $500MM in General Obligation bonds, so the APF is an absolute surplus to the state coffers.
In many ways, public employee pension funds are similar to sovereign wealth funds -- I state this as to the ability to oversee the public good.
I can see an argument for a creatively and carefully structured US sovereign wealth fund as a means of imposing financial discipline, but then I think about the lousy stewardship of the Social Security Trust Fund (which was never supposed to have been commingled with the general acc't) and the fact we're $33T in debt.
I think we can wait on the US Sovereign Wealth Fund for a bit more.
JLM
www.themusingsofthebigredcar.com