I believe a sovereign wealth fund (SWF) is coming from Trump 2.0. It may have to trigger a huge change at the Fed, which might revalue the gold certificate to a $1 trillion asset on the Fed’s balance sheet. And then the liability side of the Fed’s balance sheet would be a transfer of $1 trillion in newly created cash to the Treasury general account. The Treasury could then seed the SWF with $1 trillion cash so that the SWF could then lever up at a ratio of 1 or 2 to 1. All this is possible if Trump 2.0 gets a majority vote in both chambers of Congress. Could this happen? Yes. Will it happen? With Trump 2.0, anything is possible. This is not a forecast; it is a scenario to think about.
I start with an excerpt from the fact sheet describing the DT 2.0 executive order to create a US sovereign wealth fund:
The Executive Order directs the Secretary of the Treasury and the Secretary of Commerce to deliver a plan within 90 days for the creation of a sovereign wealth fund.
- The Secretary of the Treasury and the Secretary of Commerce will work closely with the Director of the Office of Management and Budget and the Assistant to the President for Economic Policy to develop the plan.
- The Order directs the Secretary to include in the plan recommendations for funding mechanisms, investment strategies, fund structure, and a governance model.”
(“Fact Sheet: President Donald J. Trump Orders Plan for a United States Sovereign Wealth Fund,” https://www.whitehouse.gov/fact-sheets/2025/02/fact-sheet-president-donald-j-trump-orders-plan-for-a-united-states-sovereign-wealth-fund/)
Here’s the full text of the executive order: “A Plan For Establishing A United States Sovereign Wealth Fund,” https://www.whitehouse.gov/presidential-actions/2025/02/a-plan-for-establishing-a-united-states-sovereign-wealth-fund/.
Here’s a negative opinion. It is based on the assumption that the SWF needs to be funded by issuing more direct US Treasury debt. Romina Boccia, Cato Institute Director of Budget and Entitlement Policy, had this to say about the idea:
A U.S. sovereign wealth fund (SWF) is not a good idea. Unlike countries with successful SWFs—such as Norway or Singapore—the U.S. government runs persistent budget deficits and has no surplus revenue to invest. Even if the fund’s returns exceeded the government’s borrowing costs, this wouldn’t generate new wealth for society; it would simply transfer economic activity from the private sector to the government. Worse, a government-controlled investment fund risks political interference in capital allocation and could bring the U.S. economy closer to a form of state ownership—something Americans should resist.
(“Cato Expert Discusses Sovereign Wealth Fund Executive Order,” https://www.cato.org/news-releases/cato-expert-discusses-sovereign-wealth-fund-executive-order?utm_source=substack&utm_medium=email)
Kotok’s view: There are alternatives for Trump 2.0.
The order has been signed and issued. The next 90 days will see trial-balloon leaks about parts of the plan and some very hot debate about whether or not the government should or should not own pieces of investments in American public companies and enterprises. This is a “hot” issue. Examples follow:
- The federal government contracts for an emergency vaccine. Does it ask for an equity stake in Pfizer or Moderna?
- The agriculture bill funds billions that go to many enterprises in many states. Does the federal government want a piece of that action for its sovereign wealth fund?
- In a treaty negotiation with another country governing trade and tariffs, is there a place for some sovereign wealth fund investment?
Does this approach extend to defense? Education? Would DT 2.0 use a sovereign wealth fund to build a new beachfront resort in Gaza”? Imagination has no limits.
If the SWF is to be financed by debt issuance, is it federal debt? Who pays? Who determines risk taking? Are there contingent guarantees of the US government? I could extend this list of questions for pages and pages.
IMO, DT 2.0 has opened a Pandora’s box. And, as the myth tells us, once it is open, it may not be closable again.
An alternative is to revalue the gold certificates held by the Fed. The gold is held by Treasury. The price hasn’t changed since the collapse of the Bretton Woods regime in the 1970s. So, moving that price from $42 to the current price of ~$3000 would reflect only what market prices have already done. But doing so can seed $1 trillion of new asset value onto the Fed’s balance sheet with the stroke of a pen. And that means a corresponding $1 trillion of liability, which starts as the new cash created by the Fed is handed over to Treasury.
A reading list on this issue of gold and gold certificates is below.
I don’t see any reason today to have a reaction function in the stock markets or bond markets or foreign currency markets or commodities markets, etc. The idea of an American SWF is still a surprise to be reflected upon. A congressional discussion seems to be required and legal authority established. But gold markets are setting new highs for the metal. And physical gold storage is shifting globally (“Invesco Global Sovereign Asset Management Study,” https://www.invesco.com/content/dam/invesco/apac/en/pdf/insights/2023/july/igsam-main-study-july-2023.pdf).
But the executive order has been signed, and the directive is clear.
Stay tuned.
Disclosure: I do not own any gold or gold mining ETFs in my personal accounts at this moment. That could change at any time.
Here’s the reading list.
“How the U.S. Treasury Can Cash In Big Using Its Gold Revaluation Account,” https://www.moneymetals.com/news/2025/02/14/how-the-us-treasury-can-cash-in-big-using-its-gold-revaluation-account-003838
“Gold Revaluation,” https://www.myrmikan.com/pub/Myrmikan_Research_2025_02_11.pdf
“Gold Shortages, Gold Standard, Gold Price Record,” https://nicoyaresearch.com/gold-shortages-gold-standard-gold-price-record/
“Gold-Silver Ratio: Silver Breakout Incoming?” https://www.schiffgold.com/key-gold-news/gold-silver-ratio-silver-breakout-incoming
(Note that this is not a Kotok opinion. It is an alternative view. The gold certificates held by the Fed are unique. There is no silver certificate holding at the Fed, and there is no silver hoard at Treasury. And silver has an industrial component that impacts the price. The writer here is offering a speculative opinion. Maybe it will be right and maybe wrong.)
