Springtime for America?

Spring has finally sprung here in the mountains of Virginia. Winter’s last ride is over.

It has been a while since I’ve written to you… everything is moving fast in the world of finance and economics. It’s a lot to keep up with, and there’s always a tug-of-war between narratives and counter-narratives out there. But I’m starting to wonder—could it be Springtime for America as well?

Things that I didn’t think were possible are starting to happen. Ideas that were once considered extreme are starting to circulate. Here’s one of them:

Think about it—Donald Trump announces the External Revenue Service, and his goal is very simple… his goal is to abolish the Internal Revenue Service and let all the outsiders pay.

You see, Musk is going to cut $1 trillion – that’s his job. And then we’re going to get rid of all these tax scams that hammer against America, and we’re going to raise a trillion dollars of revenue. That’s how we’re going to make America great again!

The above quote came from newly appointed Commerce Secretary Howard Lutnick at an interview last month. Lutnick is the CEO of investment giant Cantor Fitzgerald – which also happens to be one of the 24 primary dealers within the Federal Reserve System.

This is quite a privileged position to be in. The primary dealers bid on US Treasuries at auction and receive direct access to the Fed’s cheap financing through the discount window and repurchase (repo) agreements.

All that’s to say that Lutnick is a true insider. He’s attuned to the plumbing that underlies the dollar-based financial system. And here he is talking about abolishing the IRS…? How’s that for a sea change?

On the surface, it doesn’t look like the numbers could ever work.

The challenge is that the US government runs a $2 trillion budget deficit, and its largest expenses are not easy to cut. Here’s a look at the biggest line items from fiscal year 2024:

  • Social Security: $1.5 trillion
  • Interest Payments: $1.1 trillion
  • Medicare: $869 billion
  • Defense: $826 billion

Of these, there’s no way to cut the interest expense without paying off debt… which can’t be done until the budget is balanced. So that leaves Social Security, Medicare, and what they call “defense” spending as the three largest line items that can be reduced.

Trump has already promised not to cut anyone’s Social Security or Medicare benefits. In fact, he wants to eliminate the tax on Social Security, and rightfully so.

The question is – how much overt fraud exists within these two systems? It’s possible that hundreds of billions can be cut from both without impacting any living recipients.

So Lutnick is confident that Elon Musk and DOGE will find $1 trillion in total cuts across all federal spending. That would put the annual deficit at $1 trillion… and that’s where Lutnick has a trick up his sleeve.

Those of us who are of the Austrian persuasion have suggested for many years now that the federal government is insolvent. If we were to honestly account for future Social Security and Medicare commitments – as an insurance company would – the federal government’s liabilities would be in the $70 to $200 trillion range.

Looking at the income statement and the $2 trillion deficit, it’s obvious that those liabilities cannot be serviced from revenue. However, we never looked at the asset side of the balance sheet. It never occurred to us to do so… because it’s been negligible forever.

The federal government owns roughly 640 million acres of land across the country. That’s roughly 28% of the total land area of the United States.

But they don’t do anything with this land. The government doesn’t even perform regular valuations to track its cumulative asset value. The federal land holdings have been a dead asset.

In a similar way, the federal government owns over 261 million ounces of gold. It’s the largest known gold reserve in the world. However, the government still values this gold at $42.22 an ounce. That means it sits on the balance sheet at just $11 billion…. which is trivial in the big scheme of things.

What Lutnick realized is that the assets on the balance sheet should be valued significantly higher. He’s suggested that the federal government’s asset total should be around $500 trillion. If that’s the case, the numbers work. The US government isn’t insolvent.

And being a Wall Street guy, Lutnick looked over the situation and he stated aloud: “Man, if we can’t figure out how to generate $1 trillion in revenue on $500 trillion in assets, then we are the worst investors in the world.”

He’s right about that. Assuming $500 trillion is the true valuation, you just need to generate a 0.2% return to create $1 trillion a year in revenue.

And that’s where the newly created sovereign wealth fund comes into play. We’ll talk about their plan for it tomorrow.

-Joe Withrow