When we left off yesterday, we were exploring the idea that it could possibly be Springtime for America and our economy.
I would have immediately rolled my eyes had I heard someone make such a statement eight months ago. After all, it’s been clear for a while now that we’ve been hurdling towards a sovereign debt crisis in this country.
Yet, the US government continued to run massive deficits and pile up even more debt regardless. It was like they were intent on skimming every last cent from their grift before the train sped over the cliff.
The only way to avoid that fate is for the government to get its fiscal house in order. And soon. Nearly $17 trillion worth of US Treasuries are coming due over the next three years. That’s almost half the national debt.
Since the US government runs budget deficits each year, the only way it can repay those bonds coming due is by issuing new bonds. But will the market step up to buy $17 trillion worth of newly issued Treasuries over the next three years?
Given that the federal debt didn’t hit $17 trillion until 2013, it took the US government 224 years to amass that level of indebtedness. And now it has to re-issue that much in just three years’ time?
That’s simply not going to happen if the government continues to run $2 trillion budget deficits each year. Because we’re talking junky-level financial management here. And who’s going to lend $17 trillion to a junky?
The good news is that there is hope. As cynical as I was about this eight months ago, there’s now a path forward to a balanced budget and fiscal sanity.
It starts with Elon Musk and DOGE cutting $1 trillion in waste, fraud, and abuse within federal spending. That will cut the budget deficit in half.
From there, Commerce Secretary Howard Lutnick plans to create at least $1 trillion in additional revenue. That’s where the newly-created sovereign wealth fund comes in….
A sovereign wealth fund is a government-owned investment fund used to invest a country’s surplus wealth to generate extra income and meaningful returns. This is a new concept in the US, but the model is already being practiced in places like Norway, Saudi Arabia, and Singapore.
As we noted yesterday, the federal government owns 640 million acres of land. That real estate has been a dead asset up to this point, but Lutnick is going to change that.
Lutnick’s plan is to lease chunks of federal land out to energy and mining companies. Those companies will drill for oil and natural gas and mine various metals and minerals of commercial importance.
In exchange, those companies will pay the federal government a small royalty on all sales generated from these federal leases. Those royalties will reside in America’s sovereign wealth fund.
Picture oil rigs humming in Alaska and Wyoming… lithium mines buzzing in Utah… copper mines operating in Nevada – each cranking out cheap energy and metals of critical importance.
If the royalty rate was a conservative 5%, Uncle Sam would receive $5 billion from every $100 billion in sales those companies make. If the royalty rate was more aggressive at 20%, Uncle Sam would get $20 billion a year from every $100 billion in sales.
And that’s just the start.
Lutnick has also floated the idea of taking a 20% stake in the defense contractors that the US military buys from. That could generate dividend income of $3-5 billion or so each year and provide the wealth fund with upside exposure to their stocks.
He’s also talked about having the federal government acquire the American side of TikTok’s business. The company currently projects $15 billion in US-based ad revenue this year… so 50% or more of that would flow into the sovereign wealth fund each year, depending on how the deal was structured.
Then there’s the Bitcoin play.
Legislation’s already on the table to create to strategic Bitcoin reserve. It would have the federal government buy one million bitcoins over the next four years. If we assume a conservative market price of $100,000 per BTC, that’s $100 billion worth of Bitcoin.
Now, Lutnick’s firm Cantor Fitzgerald recently took a 5% stake in Tether – the company behind the US dollar stablecoin USDT. That gives his firm access to DeFi (decentralized finance) lending markets through which USDT is a major lynchpin.
What if the plan is to take that $100 billion in Bitcoin and lend it out at 12% in the DeFi markets? There’s another $12 billion a year in annual income.
And let’s not forget gold. The US government has the largest known gold reserve, totaling 261 million ounces. That’s $783 billion worth of gold at today’s prices. This gold could be leveraged as collateral to invest in higher-yield assets to produce tens of billions more in annual revenue.
Put it all together and it’s quite possible that Lutnick will be able to generate $100 billion or more in extra revenue in year one. If left in the sovereign wealth fund, that extra revenue can be reinvested so that it can compound very quickly.
Looking at it this way, it’s certainly feasible that Lutnick could work up to $1 trillion a year to balance the budget. And as the sovereign wealth fund grows, so does America’s financial security. That’s how we can avoid a sovereign debt crisis.
And here’s the thing… this is just the first page of the playbook. Balancing the budget is the easy part. It’s just basic math.
The bigger picture will be much harder to accomplish. We’ll talk about that next time…
-Joe Withrow