Most Americans don’t spend their mornings thinking about sovereign wealth funds. Yet this wonky Washington concept has suddenly entered our national conversation, thanks to recent government moves to buy stakes in companies like Intel and U.S. Steel. President Trump made it official in February with an executive order directing his administration to create a U.S. sovereign wealth fund within ninety days. Some are calling this the birth of American industrial policy 2.0. Others argue we should focus on something more fundamental: paying down our crushing national debt.
This isn’t just an academic debate. The numbers tell a sobering story that should make every taxpayer pay attention. Last year, we spent $882 billion merely servicing our national debt, more than our entire defense budget. It’s like a family drowning in credit card payments that keep growing no matter what they do. By 2040, these interest payments alone could devour $2.4 trillion annually. Against this financial tsunami, even a trillion-dollar wealth fund generating healthy returns would produce perhaps $50 billion yearly. That’s not just pocket change compared to our debt crisis, it’s practically invisible.
My recent analysis drives this point home with mathematical precision. Even under generous assumptions, a $1 trillion sovereign wealth fund earning 5 percent returns would shrink as a percentage of our economy over time, while debt service costs are projected to double from 3 percent to 6 percent of GDP. The gap widens to nearly 5 percentage points by 2040. My research shows that at current borrowing rates, such a fund would actually cost taxpayers $10 billion more than simply paying down debt.
Countries like Norway built their wealth funds during flush times, when oil revenues were gushing in. America faces the opposite reality. We’re hemorrhaging money year after year. Creating a wealth fund now means borrowing even more, essentially digging the hole deeper while pretending to fill it. It’s financial madness: taking out new loans to play the stock market while your mortgage payments are spiraling out of control.
History offers a clearer path. Twice before, after the Civil War and following World War II, America made the hard choice to pay down its debts. The payoff was enormous: greater economic stability, stronger credit, and breathing room for future investments. I’ve documented how debt fell from 119 percent of GDP after World War II to below 40 percent by 1979. This approach may lack the pizzazz of a flashy new fund, but it delivers results. More importantly, debt reduction doesn’t require politicians to play favorites in the marketplace. It’s economically sound and politically neutral.
The governance risks alone should give us pause. I’ve examined cautionary tales like Malaysia’s scandal-ridden 1MDB fund and China’s semiconductor fund, which has consistently missed targets despite $48 billion in funding. Even Trump’s executive order offers virtually no details about oversight or objectives, making it impossible to evaluate whether this serves the public interest or just creates new opportunities for political favoritism.
Here’s the reality: A sovereign wealth fund might make sense someday, if we ever run genuine budget surpluses and establish ironclad rules following international best practices. But right now, the arithmetic is unforgiving. My analysis demonstrates that we’d need to capitalize such a fund at multiple trillions of dollars to have meaningful fiscal impact, resources we simply don’t have. Reducing debt guarantees savings, reduces risk, and bolsters our credibility with global markets. In these turbulent times, America needs the steady choice. Sometimes boring is exactly what works.
For those who want to see the full analysis behind this argument, my policy paper is available here: http://dx.doi.org/10.13140/RG.2.2.12968.84486.
