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Canadian sovereign wealth funds
As a country, Canada does not have any sovereign wealth funds.
But the province of Alberta does.
The Alberta Heritage Savings Trust Fund has a current value of $18.3 billion and in the 2021-22 fiscal year earned a rate of return of 5.5% or $668 million.
Per the “Latest update” page on the Alberta government’s website, the fund has been paying out since 1976 and has contributed more than $46.2 billion for health care and education.
Criticisms of the Alberta Wealth Fund
While anything tinged by politics has critics, some of the criticisms of the Alberta wealth fund seem reasonable.
There are people who consider the Alberta fund a squandered opportunity.
People compare the Alberta fund to the Norway fund as they’re both funded through oil revenues, but the two funds have had drastically different rules.
Per University of Calgary economics Trevor Tombe, if the Alberta fund had followed the rules that Norway used, contributing all its resource revenue to the fund and limiting withdrawals to four percent per year, this nest egg would now be worth $575 billion.
American sovereign wealth funds
As with Canada, as a country, the United States does not have a sovereign wealth fund.
However, there are 21 such funds in the United States, a few of which are detailed in the first post in this series.
The largest US wealth fund, and surely the best known, is the one in Alaska that pays annual dividends to Alaska residents.
It’s The Alaska Permanent Fund. It is owned and operated by the Alaska Permanent Fund Corporation, has total assets of $79.7B, and has made an annual dividend payment every year since 1982.
The Texas Permanent School Fund was mentioned in the first post in this series, so here I’ll just mention that it has the distinction of being the world’s first sovereign wealth fund and current assets are $48B.
The Texas Permanent University Fund was created in 1876 by the Texas state legislature and was originally funded with land grants. In 1883 the Texas and Pacific Railroad returned 1 million acres of mostly worthless land to the Texas state government.
The government then deeded that land to the PUF. Then in 1923, oil was found on PUF land.
The New Mexico State Investment Council Investment Funds are commonly referred to as the State Investment Council.
They seem to manage four sovereign wealth funds, all of which were stated for specific reasons.
- The Land Grant Permanent Fund
- The Severence Tax Permanent Fund
- The Tobacco Settlement Permanent Fund
- The Water Trust Fund
Per the 2021 Report to Stakeholders, they claim total assets of $23B in assets across all their funds.
Why the US and Canada SHOULD start sovereign wealth funds
We have now identified what sovereign wealth funds are, and shown several specific examples of such funds.
I will now expand a little more on why the US and Canada should start sovereign wealth funds.
They don’t actually borrow the currency they issue
Modern economies are based on fiat currencies, floating exchange rates, and credit expansion banking systems. That is not an ideological statement of any sort. That is simply a statement of how modern economics are organized.
While we commonly talk about “national debt”, that phrase is a remnant from when gold and silver were money, and all other forms of “money” represented some amount of those metals.
Back when gold and silver was money
Back then, for a nation to issue more currency, they did one of two things:
- Find more gold and/or silver.
- Change the “reserve ratio” for the gold a silver certificates in circulation.
For example, in 1930 US law required the Federal Reserve to hold gold equal to 40 percent of the value of the currency it had issued. This was a reserve ratio of 40%.
So, in order to issue more currency, you could adjust the reserve ratio.
Going off the gold standard was the same effect as reducing the reserve ratio to 0%.
As everyone knows, since the 2008 great financial crisis, the central banks around the world have created a lot of currency.
And while we still call it debt, the whole “mint the coin” movement in the US illustrates how that isn’t true.
So today, nations with sovereign currencies can fund sovereign wealth funds merely by passing laws to do so.
ANY return beats “free” currency
Even if the fund returns only 2%, that’s better than the cost of creating currency out of thin air, which nations with sovereign currencies do.
Of course, most nations with sovereign currencies sell bonds equal in amount to the currency they created, so for this reason, interest is paid on the newly created currency, but at very low rates.
Politically “make the rich pay their taxes” will only go so far
The political dynamics that resulted in very rich people paying lower tax rates than middle-class people exist because very rich people have a disproportionate influence with lawmakers.
This is especially true in the United States and is not likely to change.
So while continuing to fight against the inequality of our current economic rules, we can also USE those rules to more broadly benefit working-class and poor people.
And this has a chance of being politically doable, as while some people WILL argue against using the investment strategies of our capitalist economy to more widely benefit the people in the lower-income distributions, it’s a hard argument when everyone has seen Congress approve the creation of trillions of dollars in support of investors and bankers.