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ik, but hypothetically, why would a surplus be needed?
Because that's where the money that is put into the fund comes from. Otherwise you're putting in money that should probably be used to balance the deficit.
but how is this different than some hedge fund or bank using money the government didn't have but still spent, using that money to invest into something? Because as I understand it, sovereign wealth funds are just the govt investing into stuff that has a long term gain
There's not much difference, but we can still agree that the example you gave are not exactly a sustainable way to grow, right?
If its not immediately clear to someonr, here is an explanation.
We all know the government borrows money right? Well the moment the government becomes an operator in the market, the market will lose faith in the stability of the government. When that happens interest rates on US debt skyrocket and its no longer possible to make more money than it costs to borrow.
It would blow up our debt immensely. Let's say the current T bill rate is 4% and you can somehow funnel a Trillion dollars into your sovereign wealth fund. Let's say you trade with it and do great, an awesome 15% return. That's an extra 150B, cool right? Well now remember that the market will demand higher rates on T-bills, and let's say it goes up only 2% to 6%. Well that means you ate now paying an extra 2% on the 36T in debt you have to continually refinance. Meaning you lost 720 Billion to make 150 Billion.
I decide to start a business. I borrow a million dollars from the bank at 2% interest.
I now have a million dollars cash, and a million dollars of debt. Logically, rather than investing my million dollars of cash in building and growing a business, I should use it to pay off my debt. That's clearly the the best use for that money.
Do you see how what you're saying doesn't make any sense?
What you're misrepresenting is that its not the millions dollars that is supposed to pay the debt, its the revenue you get after investing that million dollars into the company.
You're claiming it makes sense for the company to invest a large portion of that revenue in growing the company when the revenue is not even enough to pay back the interest from the bank?
Wait, doesn't that sounds familiar? That's basically how they run companies under a venture capital model. Who cares about negative profit as long as you continue growing, baby. I guess you really like how Silicon Valley startups run their business.
I honestly don't even know how to respond to a comment like this. Every word is such abject nonsense that it's hard to even figure out where to begin, and I frankly do not have the energy for it.
Now you know how I feel reading your comment. It made zero sense, so it was easy to counter.
You don't take out a loan to put into a savings account. That's how you lose money.