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Sovereign wealth funds


DixonHur

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I just read that Trump has ordered the Treasury and Commerce Departments to start a US sovereign wealth fund.

Trump orders creation of a U.S. sovereign wealth fund

On the surface, this sounds interesting, but I'm certainly not an expert in this area.

What's are the primary goals of a SWF? Are they to help augment tax revenue?  Pay for entitlement programs?  Or for some other reason?

What are some of the pros and cons?  IE why would we not already have one?

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4 minutes ago, DixonHur said:

I just read that Trump has ordered the Treasury and Commerce Departments to start a US sovereign wealth fund.

Trump orders creation of a U.S. sovereign wealth fund

On the surface, this sounds interesting, but I'm certainly not an expert in this area.

What's are the primary goals of a SWF? Are they to help augment tax revenue?  Pay for entitlement programs?  Or for some other reason?

What are some of the pros and cons?  IE why would we not already have one?

Like so many things, the enterprise/effort is only as good as the people running it.

For example, many moons ago, a light rail package was on the ballot in Austin.  My position was pretty simple: the concept and package objectively made sense, and was something I could support.  BUT....Cap Metro would be running it.  So I firmly opposed it.

Sovereign Wealth Funds can be great things, they can be super-shitty things.  It all depends on the nature and character of the people/entities controlling them.  And I'll stop there and let you do your own evaluation without taking this to the CR.

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1 minute ago, Samson's Wig said:

They make for an excellent source of graft if set up properly, i.e. without what most would consider appropriate transparency. 

I'm 100% sure there will be grifting.  It's the government after all, but beyond that, what are they used for, why were they created and what are the dangers?

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2 minutes ago, DixonHur said:

I'm 100% sure there will be grifting.  It's the government after all, but beyond that, what are they used for, why were they created and what are the dangers?

Norway has one.  It is not a source of grift.  It's kind of the gold-standard for what such a fund should be and how it should be used: wealth generated by the resources of the nation as a whole (for Norway, that's O&G wealth) is saved and used for the benefit of the people.

Several African nations have SWFs, which function on a range of success/transparency (some pretty good, some not-so-good).  The risks/dangers range from those tied to basic purpose and decisionmaking (should money be spent only on national-scale efforts, or should local infrastructure projects be included?  Should individual citizens get direct benefits, or should all spending be focused on large-scale projects?) to those tied to the character of the people running it (is it just a funnel of public wealth to the pockets of the regime/its cronies?)

 

 

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3 minutes ago, DixonHur said:

I'm 100% sure there will be grifting.  It's the government after all, but beyond that, what are they used for, why were they created and what are the dangers?

Well, we've had some of that discussion elsewhere already. I didn't read your article, so they may have been discussed, but several oil-producing states like Saudi, Norway, the Gulf States, etc., have Sovereign Wealth Funds where they use surplus revenues (profits) from their state-owned oil companies to make investments they feel benefit their countries. Texas has one, too, of sorts: the Permanent University Fund. We (the federal government) has also looked into setting one up before, so it's not exactly a new idea.

But take Brisket's point about the who in this context and what is going on at this moment, then I think it's fair to say that some skepticism about the motives and how this thing would be funded is warranted.

Administration officials did not say how the fund would operate or be financed, but Trump has previously said it could be funded by "tariffs and other intelligent things."

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6 minutes ago, Brisketexan said:

wealth generated by the resources of the nation as a whole (for Norway, that's O&G wealth) is saved and used for the benefit of the people.

Oh so it won't be that.

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A sovereign wealth fund could actually be useful if our economy collapses and we stop being the de facto world reserve currency. Absent that, I'm not sure it serves much of a legitimate purpose for the United States.

Edited by Dahobbs
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26 minutes ago, Dahobbs said:

A sovereign wealth fund could actually be useful if our economy collapses and we stop being the de facto world reserve currency. Absent that, I'm not sure it serves much of a legitimate purpose for the United States.

It provides a way to “invest” into projects to signal legitimacy of a project or desired direction of a technology or concept without having to straight up provide a grant or subsidy. Investing with the expectation of seeing a return is a much different signal than grant and aid.

Now how it’s managed or the approach and targets is up in the air, but the major impact would be that that the US SWF sees something is a worthwhile investment or risk would  bring legitimacy and there potentially other investors.

 

I am torn if I like the idea of the US having their own SWF, but it’s not a complete waste or graft. The issue I see is that the US generally views that rest of the world see the power of the US market and economy and so outside investors solve all of our capital concerns and so a SWF isn’t really needed.

Thinking out the box, could we use the SWF as an investment vehicle for nuclear power in the US and around the globe? Something that is sufficiently cost prohibitive and in the US may not be able to be funded by outside interest due to national security concerns.

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25 minutes ago, Laxtonto said:

It provides a way to “invest” into projects to signal legitimacy of a project or desired direction of a technology or concept without having to straight up provide a grant or subsidy. Investing with the expectation of seeing a return is a much different signal than grant and aid.

Now how it’s managed or the approach and targets is up in the air, but the major impact would be that that the US SWF sees something is a worthwhile investment or risk would  bring legitimacy and there potentially other investors.

 

I am torn if I like the idea of the US having their own SWF, but it’s not a complete waste or graft. The issue I see is that the US generally views that rest of the world see the power of the US market and economy and so outside investors solve all of our capital concerns and so a SWF isn’t really needed.

Thinking out the box, could we use the SWF as an investment vehicle for nuclear power in the US and around the globe? Something that is sufficiently cost prohibitive and in the US may not be able to be funded by outside interest due to national security concerns.

This is an interesting take.  Could a SWF act in a venture capital capacity?  IE instead of research grants, could it provide research capital in exchange for equity?

How does IP work at public Universities now?  Does the school, or government own the IP from it's students/faculty research?

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Just now, Js1 said:

Steve Bannon Bingo GIF

No, no, no. You need to think of the national debt like a household with outstanding credit card balances. A SWF is the same as a household, uh, taking out a loan. Wait, that can't be right. Its actually kinda like a household finding a way to put more money aside so that in the future . . . actually this doesn't sound right at all.

Maybe thinking of the national debt as similar to an outstanding balance on a CC was a stupid fucking analogy after all. 

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4 minutes ago, Js1 said:

Steve Bannon Bingo GIF

A sovereign wealth fund could have been put in place en lieu of Social Security decades ago and that would almost certainly have $$ in it going forward, unlike the Ponzi scheme that is currently in place.

 

 

If you want to invest in the current US Sovereign wealth fund, just buy BRK.B  

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7 minutes ago, hornmpa96 said:

Generally speaking a SWF only makes sense for a country with a surplus. For the US, a SWF either results in more government borrowing or alternatively cuts to other government programs to fund the SWF.

Here, it would involve:

1) Cuts to other government programs to fund it

2) AND more government borrowing

3) To be used to spend/finance pet projects of the regime/projects in which the regime has a direct financial interest

 

When you have a sovereign wealth fund that funds erosion control projects, that may be a legitimate use of funds that provides a benefit to the greater public.  When you have a sovereign wealth fund that funds erosion control projects in areas where members of the regime own property, say, a large Florida club, then it is a slush fund and a re-routing of public dollars for the private benefit of the regime.

We can talk about a SWF in theory all we want, but that's pointless.  As pointless as the discussions about light rail in Austin in theory are pointless.  The only conversation is about light rail run by Cap Metro.....which was always going to be a useless money pit boondoggle.

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43 minutes ago, Laxtonto said:

It provides a way to “invest” into projects to signal legitimacy of a project or desired direction of a technology or concept without having to straight up provide a grant or subsidy. Investing with the expectation of seeing a return is a much different signal than grant and aid.

Now how it’s managed or the approach and targets is up in the air, but the major impact would be that that the US SWF sees something is a worthwhile investment or risk would  bring legitimacy and there potentially other investors.

 

I am torn if I like the idea of the US having their own SWF, but it’s not a complete waste or graft. The issue I see is that the US generally views that rest of the world see the power of the US market and economy and so outside investors solve all of our capital concerns and so a SWF isn’t really needed.

Thinking out the box, could we use the SWF as an investment vehicle for nuclear power in the US and around the globe? Something that is sufficiently cost prohibitive and in the US may not be able to be funded by outside interest due to national security concerns.

I don't see much of a distinction. When the US invest government funds, it is always with the expectation of some sort of return, whether that be for a particular service, technology, or result. There also isn't anything in particular that stops us from doing it now. That's essentially what part of TARP was during the financial crisis in 2008, with the government gaining interest in entities like Bank of America, AIG, General Motors, and Citigroup. 

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The time to have created this type of fund was when Social Security was created to take the contributions and invest them responsibly instead of a slush fund for deficit spending.  Could have invested in T-bills to create the same arrangement but with a formalized debt instrument.

Pessimist me is going with the grift motive to put cronies in charge and have them invest in things like golf courses and NYC real estate that is underwater at inflated prices to buy out the owners so they can pay off their foreign loans or to realize the paper "profits" of  assets like Bitcoin.

Edited by TexasEd
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