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How a United States Federal Sovereign Wealth Fund Could Solve the United States Debt Problem

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The single most pressing national security issue for the United States is its addiction to deficit spending and its overwhelming debt.  The United States uses deficit spending to pay for the goods and services demanded by the American people and its deficit spending is out of control.  As of January 2023 , the United States debt was $31.4 trillion.  That is more than the annual GDP of its economy.

And despite lip service to the seriousness of the debt, and it’s long term consequences for the health of the United States economy, The Office of the President has sent to the Congress its proposal for the coming fiscal year of $5.8 trillion.  The Budget was approved and is currently in force.  The deficit for this years budget is $1.2 trillion.  In 2022, the United States paid $399 billion in interest payments to its creditors.  The Peter G. Peterson Foundation published an analysis of the projected increase in the amount of  interest payments in the coming decade:

“In late May, the Congressional Budget Office (CBO) projected that annual net interest costs would total $399 billion in 2022 and nearly triple over the upcoming decade, soaring from $442 billion to $1.2 trillion and summing to $8.1 trillion over that period. However, if inflation is higher than CBO’s projections and if the Fed raises interest rates by larger amounts than the agency projected, such costs may rise even faster than anticipated.”

Yet with the United States budget awash in red ink, the US refuses to tax itself to pay for the goods and services that the American people demand.  The deficit spending by the United States is unsustainable, and if not remedied will lead to the collapse of the United States economy, and to the end of The Republic of the United States.

A fuller analysis of this study can be found at this link.

Sovereign Wealth Funds Throughout the World

The first time the phrase “Sovereign Wealth Funds” was used was in 2005 by Andrew Rozanov in an article with the State Street Global Advisors.  At that point in time, Mr. Rozanov estimated that the value of sovereign wealth funds was $895 billion.  Since then the wealth of sovereign wealth funds had grown to over $10.3 trillion.

Some sovereign wealth funds established the corpus of their sovereign wealth fund was by using the excess funds held by their central bank such as the Chinese Investment Corporation, though the majority of sovereign wealth funds, like the Norwegian Government Pension Fund, and the Saudi Arabian Public Investment Fund use a severance tax on oil and gas reserves to establish their sovereign wealth fund.  Typically, sovereign wealth funds will then invest those funds in worldwide equities, bonds and in real estate.  The earnings on these investments are then either consumed by the state that owns the sovereign wealth fund or is reinvested in other income producing investments.

To bring some transparency to this new macroeconomic investment entity, the world’s sovereign wealth funds established a voluntary generally accepted principles and practices.  Named for the place where the initial conference took place, in Santiago Chile in 2008, the Santiago Principles laid out 24 principles for each sovereign wealth fund to follow.  Adherence to the Santiago Principles is voluntary and there is no governing or enforcement mechanism.

Sovereign Wealth Funds at the Associate State Level in the United States

At the associate state level of the union of the United States, 20 states have found a different way to meet their state financial obligations by establishing sovereign wealth funds that benefit their citizens of their particular state.

Probably the best-known state sovereign wealth fund in the United States is the Alaska Permanent Fund.  The Alaska Permanent Fund was founded in 1976 under the Alaskan governor Jay Hammond, who had been concerned that the citizens of Alaska were not fully realizing the benefits of oil being extracted from Alaska state lands.  The initial funding of the Alaska Permanent Fund was $724,000.  The current value of the Alaska Permanent Fund is more than $75.3 billion.

Every year, the Alaska Permanent Fund disburses a Permanent Fund Dividend to the citizens of Alaska.  The Alaskan Permanent Fund Dividend for 2022 was $3,284.

Many Alaskan citizens depend on this dividend, and incorporate the dividend checks into their yearly living expenses.

New Mexico has a sovereign wealth fund as well.  The New Mexico sovereign wealth fund has its origins in the Ferguson Act of 1898.  The Land Grant Permanent Fund (LGPF) was created alongside of the Ferguson Act.  However it was the state of New Mexico that created the Severance Tax Permanent Fund  (STRF) which allows for proceeds from the LGPF to be invested in equities, bonds and other real estate in order to provide for future generations of New Mexico citizens when the oil and natural gas revenue has run its course.  It is estimated that the STRF reduces the tax burden of the citizens of New Mexico by $1,000 per citizen.  The fund is managed by the New Mexico State Income Council.  The current value of the fund is $34.4 billion for 2022.  New Mexico also uses it’s Fund to provide a college education at a New Mexico public institution of higher learning.

Mineral Resources on Federal Land of the United States as a Basis for a Federal Sovereign Wealth Fund

Like the Norwegian Government Pension Fund, and the Saudi Arabian Public Investment Fund, the United States has vast mineral resources on federal lands that would be the basis for the establishment of a federal sovereign wealth fund.  The United States has more mineral resources on federal land that both Norway and Saudi Arabia combined.

On federal land alone, the United States has over 4.2 trillion barrels of shale oil in the Green River formation in the upper Mid-West.  Some 74 percent of this shale oil is on federal land, owned by the people of the United States.

Previously this vast mineral wealth was not considered recoverable, however the energy company Schlumberger has acquired technology from the Raytheon company that allows Schlumberger to extract shale oil underground and without using the current fracking procedures used in other shale oil fields.  Using microwave technology, Schlumberger is able to cook the shale oil out of the shale oil with a minimum use of water.

With the vast oil reserves of the Green River formation, and an estimated 3.182 trillion barrels of oil that is on federal land, and with a current value of $254 trillion (assuming a price of $79.86 per barrel of oil), the federal government has mineral assets of $254 trillion in the Green River Formation alone.

As mentioned above, the current national debt of the United States stands at $31.4 trillion.

Changes would be necessary to the way the US federal government is compensated by mineral companies extracting wealth from federal lands.  Currently the United States receives $0.125 cents for every $1 dollar of wealth extracted.  This royalty amount was established by the Mineral Leasing Act of 1920.  It has never been changed, even though it has been 100 years since the royalty amount was established.  Alaska, Texas, New Mexico and other states who have a severance tax on the extraction of wealth have much higher rates.  A proposed blueprint for a more equitable method for a federal sovereign wealth fund can be found at this link.

The average rate of return on investment for the Alaska Permanent Fund for the 35 years has been 8.8%.

Assuming an investment of $100 trillion by a United States federal sovereign wealth fund with a return on investment of 8.8%, would mean an annual return of $8.8 trillion.

The Norwegian Government Pension Fund announced that for 2019, its investments had a return on investment of 19.9 percent, which translate to $180 billion.  This investment income came from a sovereign wealth fund that had a balance of $920 billion.  Assuming a US sovereign wealth fund with a base of $100 trillion, that would translate into an investment income of $19 trillion.

All of this is theoretical possible, all that is lacking is the political will to establish a United States federal sovereign wealth fund.