What if the government borrowed and invested?

[bobcat]

Over the last 25 years and more, the national debt is growing faster than the economy. At some point we fall into the black hole and there will be no way back if we can't find a solution.

The idea has been around for some time for the government to invest money in the market. Over the last 100 years there has been banner years and bust years, but over the long haul, the S&P has generated around a 10% return (Assuming it's reinvested). I'm sure the best of the best investment managers could do even better.

If the US is paying around 3.6% on the money it borrows, and a portion is invested, then it seems like a possibility to explore. It's leveraged investing, and business do it all the time. Even 401k plans invest your money, and if you can stay the course over the long haul and through the storms, then why not if the eventual returns will be there.

I know the government doesn't operate like hedge funds, but what is the alternative if we keep doing what we're doing and expecting different results. Everyone loves conservatism when their tax money is involved, but that's like refusing to vacate your trusted car when you can see it's headed for a cliff.

IDK ..... it's just a crazy thought, but maybe we need one. Norway has done it for over 25 years, and is now the largest sovereign wealth fund in the world, with assets exceeding $1.7 trillion as of 2024, so it's not too far-fetched.

 

[MACKTEXAS]

The logic is clear, but it's unlikely we will see that in the near future. There are current discussions about potentially altering the Social Security trust fund's investment strategy beyond Treasury securities in favor of higher returns, but past proposals of that nature have been met with significant criticism.

 

[Disgustedman]

Well, honestly we used to have a 90% tax bracket for millionaires. I recall Lee Iacocca in his book mentioned that during his Ford years, he was making $2 for every $20 he earned.

Now it's 35-45%, I think we should revamp the IRS collection rates. To keep SS good, would only required doubling the tax rate. Plus government keeping out of its pockets too.

 

[bobcat]

The logic is clear, but it's unlikely we will see that in the near future. There are current discussions about potentially altering the Social Security trust fund's investment strategy beyond Treasury securities in favor of higher returns, but past proposals of that nature have been met with significant criticism.

Yes, Social Security is in a mess as well. The investment strategy you mentioned only applies to a surplus when SS brings in more than it pays out, and that hasn't happened since 2020. In a sense, the General Fund is able to borrow from the SS fund to use for other expenses, and it owes that money, along with interest, back to the SS fund.

Since a surplus hasn't happened since 2020, and is highly unlikely to happen in the future, once the past investments and interest stops coming in, then that income stream stops, and there are no more investments. Social Security income will be reduced.

At least for SS, it has proposed solutions by gradually increasing the retirement age, lifting the cap on SS taxation, and reducing benefits to recipients.

As for the national debt solutions, they aren't as workable. If you increase taxes or cut spending, both will affect the economy and ultimately income. It's a pickle for sure, and likely to get worse.

 

[Aunt Bea]

I would prefer to see the government spend responsibly and collect enough in taxes to pay as we go.

If the government does have to borrow for wars, natural disasters, etc… there should be some sort of special assessment to pay the bills.

I also believe that the government should cut back to its core business and not try to solve/meddle in every aspect of our lives.

I do believe that it may make sense for the government to take an ownership stake in businesses that require government bailouts or unusual government spending to stimulate investment. The CHIPS act come to mind. The government is spending billions to subsidize the construction of a Micron chip fab in my area. Why not swap those government funds for common stock in Micron.

 

[Irishdude]

Well, honestly we used to have a 90% tax bracket for millionaires. I recall Lee Iacocca in his book mentioned that during his Ford years, he was making $2 for every $20 he earned.

Now it's 35-45%, I think we should revamp the IRS collection rates. To keep SS good, would only required doubling the tax rate. Plus government keeping out of its pockets too.

I can only hope that no one listens to your ideas! Doubling the tax rate would be an economic catastrophe in so many ways. Nowadays people are mobile and billionaires would pick up and move to places with lower taxes. That went on in Europe for decades.

 

[Paco Dennis]

The "Norway Model" isnt comparable
Norway’s fund succeeds because:
It’s funded by **oil surpluses**, not debt.
There is zero political interference, Parliament can’t direct investments.
No withdrawal needs, it’s purely for future generations.
The US would be borrowing to gamble, with politicians pressured to "rescue" failing industries or pump votes into districts.

 

[VaughanJB]

I don't know how this could work. How could a government have an active interest in the companies it invested in? Sounds to me like a huge open door for fraud. We rely on the government to regulate what businesses do, but if the government was actively investing...... not for me.

Frankly, it's not the governments job.

 

[MACKTEXAS]

Yes, Social Security is in a mess as well. The investment strategy you mentioned only applies to a surplus when SS brings in more than it pays out, and that hasn't happened since 2020. In a sense, the General Fund is able to borrow from the SS fund to use for other expenses, and it owes that money, along with interest, back to the SS fund.

Since a surplus hasn't happened since 2020 . . .

Yes, thanks for that, and I understand how it has worked historically. I was referring to proposals that are emerging to diversify investments options in a broader sense with the goal of extending Social Security's solvency beyond the projected depletion date of 2034. Treasury securities are seen by some as not generating enough returns to keep pace with the program's long term obligations.

 

[fuzzybuddy]

You've hit on the problem of the government investing in the stock market- its volatility-up one day down the other. Programs need a reliable source of funding. The Air Force can't buy gas this year, because the government's stock tanked. And there is just way too much of chance of stock manipulation by the government, plus corruption in the government and in the stock market would sky rocket.

 

[bobcat]

You've hit on the problem of the government investing in the stock market- its volatility-up one day down the other. Programs need a reliable source of funding. The Air Force can't buy gas this year, because the government's stock tanked. And there is just way too much of chance of stock manipulation by the government, plus corruption in the government and in the stock market would sky rocket.

Well, just to clarify, the up one day and down the next is of no importance when you're in long term investing. As for the manipulation problem, the fund could be managed by an independent agency. Just a thought?
Out of curiosity, what do you think should be done. It's only going to get worse if we do nothing.

 

[bobcat]

I don't know how this could work. How could a government have an active interest in the companies it invested in? Sounds to me like a huge open door for fraud. We rely on the government to regulate what businesses do, but if the government was actively investing...... not for me.

Frankly, it's not the governments job.

I was thinking that perhaps an independent agency could possibly manage the fund. I would imagine that 99% of all congressional populus is invested in the stock market, which opens the door for corruption and insider trading, but it is watched closely, and the penalty is stiff. Again, it's just a thought that has been batted around for awhile.

What do you think we should do with this growing problem. We have to come up with some sort of solution or we're screwed.

 

[bobcat]

The "Norway Model" isnt comparable
Norway’s fund succeeds because:
It’s funded by **oil surpluses**, not debt.
There is zero political interference, Parliament can’t direct investments.
No withdrawal needs, it’s purely for future generations.
The US would be borrowing to gamble, with politicians pressured to "rescue" failing industries or pump votes into districts.

If this is a DOA idea, what do you propose we do before it's too late (If not already)?

 

[Knight]

Given the way present gov. operation works, debt increase to operate is not a problem.

I could envision using that same not caring about spending to gain decision making control of businesses/investments.

IMO eventually leading to

In socialist theory, the government typically controls the means of production. This includes industries, businesses, and resources that are essential for generating wealth.

But if government did do like successful businesses & operate with the concept of eventually reaching & having a positive balance sheet after expenses that would be my preference.

 

[Murrmurr]

... what do you think should be done. It's only going to get worse if we do nothing.

Shrink the gov't, like @Aunt Bea suggested. Our taxes fund hundreds of unnecessary federal agencies, pay each of their administrators as much as $250K a year, their HR people around $100K/yr, and their thousands of regular employees upwards from $60K/yr, and they all get excellent benefits and retirement packages, also paid for with tax dollars.

A lot of those agencies are redundant and do little more than increase bureaucracy. Some fed agencies already existed at the state level before they were created; the Department of Education, for example; and I'm sure no one has a poster of the USDA food pyramid hanging on their kitchen wall. I don't think many people even know that state and local health departments regulate food safety in their jurisdictions.

Bottom line, we need to severely cut federal spending. Federal expenses should include military defense, the federal justice system...and what else? There's a 3rd thing I can't think of right now.

 

[HoneyNut]

There's a 3rd thing I can't think of right now.

Federal reserve maybe? Social Security? Medicare? Highway systems?

I'm in favor of a bigger government, companies don't care about the environment or anything that takes longer range planning, or things like worker protections.

If states were in control of everything then one state would dump poisons in the river and the state downstream would suffer.

We wouldn't have the disabilities act that gave us ramps. We wouldn't have the ACA. We wouldn't have controls on drug approvals. We wouldn't even have FDIC insurance on our savings accounts at our banks.

We wouldn't have controls for diseases, tracking of drug resistant diseases like TB, scary diseases like ebola.

I think with the current reduction in government over the next few years we will start to find out the good things we had that we've lost, though some of the bad effects may take longer.

And now we have AI coming with a government that has removed the safety and governance of it.

 

[Murrmurr]

Federal reserve maybe? Social Security? Medicare? Highway systems?

No, that wasn't it.

I'm in favor of a bigger government, companies don't care about the environment or anything that takes longer range planning, or things like worker protections.

If states were in control of everything then one state would dump poisons in the river and the state downstream would suffer.

We wouldn't have the disabilities act that gave us ramps. We wouldn't have the ACA. We wouldn't have controls on drug approvals. We wouldn't even have FDIC insurance on our savings accounts at our banks.

We wouldn't have controls for diseases, tracking of drug resistant diseases like TB, scary diseases like ebola.

I think with the current reduction in government over the next few years we will start to find out the good things we had that we've lost, though some of the bad effects may take longer.

And now we have AI coming with a government that has removed the safety and governance of it.

I could not disagree with you more.

State governments are elected by the people who live in those states, people who know what they want and need. And candidates running for state offices are (usually) also citizens of those states. In any case, people prefer to vote for long-time residents of their state.

The US Republic was originally set up so that people could control their government. It's way easier to control your state government than a federal government, especially after we grew to 50 states from the original 13.