Last week, we talked about the plan to recapitalize America and how the various pieces are falling into place.
Recapitalization refers to a significant restructuring of an entity’s financial and economic framework. It’s all about stabilizing the capital structure.
It’s more common to talk about recapitalization in terms of a business, but the Trump administration is applying the same principles to the U.S. government.
As a reminder, there are three broad pillars to this plan. They are:
The first pillar, U.S. Dollar Stability, stems from the recently passed GENIUS Act and the rise of stablecoins.
As we explored last week, stablecoins represent a 21st-century Bretton Woods Agreement that will serve to re-dollarize the world – keeping the U.S. dollar as the dominant currency globally. Near Future Report senior analyst Nick Rokke explored that dynamic in depth last month in his piece titled How the Dollar is Conquering Without Force.
We also discussed the second pillar last week, with a focus on President Trump’s appointment of Stephan Miran – first to the Council of Economic Advisers (CEA) and now to fill the vacant seat on the Federal Reserve Board of Governors.
Miran authored a paper titled A User’s Guide to Restructuring the Global Trading System, which lays out a framework for reshoring American manufacturing and making American-made products more competitive in global markets.
Simply put, the Trump administration is hell-bent on restoring America’s manufacturing capacity. They see that as the key to economic revitalization and the restoration of the once-great American middle class – as we discussed in depth last week.
The third pillar of the recapitalization agenda aims to address the federal debt and the U.S. government’s fiscal health. That’s where the Department of Government Efficiency (DOGE) and an interesting character by the name of Howard Lutnick come into the picture…
In February, then-newly appointed Commerce Secretary Howard Lutnick said this in a Fox News interview…
Think about it – Donald Trump announces the External Revenue Service, and his goal is very simple… his goal is to abolish the Internal Revenue Service and let all the outsiders pay.
You see, Musk is going to cut $1 trillion – that’s his job. And then we’re going to get rid of all these tax scams that hammer against America, and we’re going to raise a trillion dollars of revenue. That’s how we’re going to make America great again!
Lutnick has been completely transparent about his role in the plan to address the U.S. government’s budget deficit.
If his name sounds familiar, Lutnick was previously the CEO of investment giant Cantor Fitzgerald, which also happens to be one of the 24 primary dealers within the Federal Reserve System. That’s quite a privileged position to be in.
The primary dealers bid on U.S. Treasuries at auction and receive direct access to the Fed’s cheap financing through the discount window and repurchase (repo) agreements.
All that’s to say that Lutnick is a true insider. He’s attuned to the plumbing that underlies the dollar-based financial system.
Now, Lutnick is a brash, slick-talking, old-school New Yorker. He started working on Wall Street in 1983 when he was in his 20s… and he’s been making millions on the Street ever since. I get the sense that he’s the type of person that you always hear him before you see him.
I say that because Lutnick has been very boisterous about the plan. He’s proud of it… and he’s not shy about talking it up.
I listened to a long-form podcast that Lutnick did back in November, prior to the election. He laid it all out on the table back then, and he’s talking about the same strategy today. My takeaway is that the Trump team understands the dire need to shore up the U.S. government’s finances.
The challenge is that the U.S. government runs a budget deficit of nearly $2 trillion a year, and its largest expenses are not easy to cut. Here’s a look at the biggest line items from fiscal year 2024:
Of these, there’s no way to cut the interest expense without paying off debt… which can’t be done when you’re running massive budget deficits. So that leaves Social Security, Medicare, and what they call “Defense” spending as the three largest line items.
DOGE did identify waste and fraud totaling over $60 billion embedded in the Social Security and Medicare systems… but that’s only a drop in the bucket compared to the overall costs. At the same time, the Trump administration increased the Defense budget to over $1 trillion.
So we’re not going to see any significant cost savings coming from the federal budget’s largest line items. And it appears that Congress has repurposed most DOGE savings into other areas of government spending – which means Elon Musk’s initial goal of cutting $1 trillion in government spending is not going to happen.
But that doesn’t mean the entire plan is shot…
I’ve come to an interesting revelation lately – those of us who have been concerned about the government’s fiscal situation have been trained only to look at the income statement. Here’s what I mean…
We see the massive budget deficits that have ballooned over time… we see how the federal debt has piled up… and we’ve seen how Congress has made no sincere effort to cut spending.
We look at this situation, and it paints a dire picture. We wonder how it could go on for much longer.
But we’ve never seriously looked at the U.S. government’s balance sheet before. And that’s where Lutnick’s work begins.
It seems Lutnick is the man behind the idea to create a sovereign wealth fund for the U.S. government. And he realized something very important that many of us missed – the U.S. government has a lot of assets.
Those assets could be monetized to improve the government’s fiscal situation… but that’s never been on the table before. Previous administrations simply ignored the balance sheet.
Consider this – the federal government owns roughly 640 million acres of land across the country. That’s roughly 28% of the total land area of the United States.
But they don’t do anything with this land. The government doesn’t even perform regular valuations to track its cumulative asset value. The federal land holdings have been a dead asset.
In a similar way, the federal government owns over 261 million ounces of gold. It’s the largest known gold reserve in the world – assuming it’s all still there.
However, the government still values this gold at $42.22 an ounce. That means it sits on the balance sheet at just $11 billion…. which is trivial in the big scheme of things.
If we were to value that gold at today’s market price, which is over $3,370, suddenly that’s over $879 billion in assets. That’s material.
So what Lutnick realized is that the assets on the balance sheet should be valued significantly higher. He’s on record as saying that the U.S. government’s total assets are worth over $500 trillion.
Being a Wall Street guy, Lutnick looked over the situation and he stated aloud…
Man, if we can’t figure out how to generate $1 trillion in annual revenue on $500 trillion in assets, then we are the worst investors in the world.
That’s a reasonable statement. If $500 trillion is the true valuation, you just need to generate a 0.2% return on those assets to create $1 trillion a year in revenue.
Now, I suspect that the $500 trillion figure is an exaggeration. But still, the principle remains the same. The U.S. government is not broke. It has assets that can be monetized to improve its fiscal situation.
So that’s Lutnick’s job.
He’s going to oversee the sovereign wealth fund, which will allow the government to lease federal land in exchange for royalty payments. This will enable energy companies to drill for oil, and it will empower mining companies to produce various metals and minerals for sale on the private market.
Those companies will then pay a small percentage of the revenues they generate back to the government as royalties – creating a new income stream that never existed before.
Importantly, these royalties will flow into the sovereign wealth fund, not the general account. That’s critical because it will prevent Congress from appropriating the funds for more wasteful spending.
Instead, the revenue can accrue in the sovereign wealth fund to be used for strategic investments in things like domestic infrastructure or potentially paying down debt.
Lutnick has also floated the idea of taking equity stakes in private companies and putting those in the sovereign wealth fund… and they just did that with Intel (INTC). The U.S. government is taking a 9.9% ownership stake in the legacy semiconductor company, and as the value of Intel increases, so will the value of the U.S. government’s stake in Intel.
Going forward, the U.S. government will receive quarterly dividends from Intel – creating another source of income that will flow into the sovereign wealth fund. At current dividend rates, this equates to nearly $40 million in dividend income each quarter.
Lutnick also believes that the U.S. government should own equity interest in the defense contractors that it buys from – noting that these companies are in a massively privileged position because of their relationship to the Department of Defense (DoD).
If this should come to pass, it would create another stream of quarterly dividend income flowing into the sovereign wealth fund.
There’s also been chatter that in the absence of any U.S. buyers, the U.S. government may buy the American version of TikTok and throw it into the sovereign wealth fund as well. That would create yet another source of consistent revenue.
Now, please don’t take this analysis as an explicit endorsement of these things. I’m just assessing the gameboard as it currently exists – so that we can make informed investment decisions accordingly.
The bottom line is that, even if Congress fails to cut spending per DOGE’s findings, the U.S. government can still reduce its annual deficit materially by creating recurring streams of income from the asset side of its balance sheet.
It will take some time to build up this extra revenue. But if Lutnick can work up to his goal of $1 trillion a year, that would effectively cut the budget deficit in half.
That would go a long way towards improving the U.S. government’s fiscal health. Especially if the administration also enacts policies that drive serious economic growth.
And that’s where DOGE may prove to be most effective…
We’ve all heard someone complain about red tape at one point or another. But often those complaints are targeted at the inefficiencies of the Department of Motor Vehicles (DMV) or similarly annoying but trivial matters.
What many don’t realize is just how massive the U.S. government’s regulatory burden has become… and how it forces DMV-like inefficiency upon so many industries unnecessarily.
There are an estimated 200,000 federal regulations on the books today. That’s a mountain of regulations that strangle virtually every industry while driving compliance costs through the roof.
To quantify this, estimates suggest that regulations cost the U.S. economy around $2.5 trillion annually – just in compliance alone. That’s about 8-9% of GDP, according to estimates from groups like the Competitive Enterprise Institute and the National Association of Manufacturers.
For context, that’s more than $18,000 per household every year in hidden costs passed on through higher prices, lower wages, and lost opportunities.
In a sense, this represents low-hanging fruit.
DOGE recently revealed that they are using an artificial intelligence (AI) tool called SweetRex to identify and eliminate arbitrary regulations that aren’t explicitly mandated by law. Their goal is to slash 100,000 regulations by early next year, ideally cutting the regulatory burden in half.
It’s a simple thing, but this would not be possible without the use of this newly developed AI tool.
Early projections suggest that slashing 100,000 regulations would unlock roughly $3.3 trillion in annual economic benefits. And research from the National Bureau of Economic Research shows that past deregulation in sectors like transportation and utilities boosted productivity and investment, adding 1-2% to annual GDP growth in those areas.
So if we get the same results from DOGE’s effort to cut the regulatory burden in half, we could see 3-4% in GDP growth over the next decade. And that’s real growth from actual economic activity, not from government spending, which is also included in the GDP measurement.
As for shoring up the U.S. government’s fiscal situation, accelerated GDP growth would result in greater tax revenues without higher tax rates.
Based on current tax revenues, 3-4% GDP growth would result in additional revenue between $500 billion and $1 trillion for the U.S. government.
Combine this with Lutnick’s asset monetization, and the annual $2 trillion deficit would shrink dramatically. In fact, if Lutnick reaches his goal of $1 trillion a year in revenue, and if cutting regulations drives $1 trillion in extra tax revenue… well, the U.S. government would suddenly be running a balanced budget.
That’s the optimistic view.
But even if the numbers come in at half that, we’re still looking at a path to a more stable fiscal situation. Especially as tariff revenues rise to material levels of around $500 billion a year, as current forecasts suggest.
This scenario could very well lead to Trump’s touted “golden age” for America.
If all the above came to pass, we would see an explosion of new job creation and rising wages paired with falling prices and falling interest rates. That would lead to the revival of the middle class and small business on Main Street, which have been suffocated by the current regulatory burden.
Suffice to say, the stock market and other U.S.-centric investments will do very well in this environment.
The big takeaway here is that the Trump administration does have a plan in place to recapitalize America – even if they fall short of dramatically cutting government spending.
We may be uncomfortable with certain aspects of the plan, but it’s clear that they are going to power forward regardless of what anyone thinks.
Personally, I was much more excited about the prospects of allowing Elon Musk to cut $1 trillion in government spending – in addition to everything else we just discussed. Then we could have a serious conversation about what Lutnick was bragging about initially – that they were going to abolish the Internal Revenue Service (IRS).
That doesn’t appear to be on the table any longer. At least for the time being.
Still, this path could lead to a much brighter future than what we were looking at just a few short years ago when they shut down large swathes of the economy, forced small businesses to close their doors, and threatened to fire everyone who refused to take an experimental injection for which there was no safety data…
And then printed trillions of dollars from nothing, driving consumer price inflation to the highest levels in 50 years.
In that climate, Klaus Schwab and the goons at the World Economic Forum (WEF) had the audacity to run a commercial for their “Great Reset” plan, which proposed to overthrow the existing financial system and replace it with a system in which “You will own nothing and be happy.”
Yeah – no thanks, Klaus.
For whatever its flaws, the current plan to recapitalize America strikes me as preferable to what was on the table before.
Of course, there will be second and third-order effects as the Trump administration executes its plan. I’m sure there will be some drawbacks and trade-offs… that’s a given when it comes to economics.
Regardless, this is the rollercoaster we find ourselves on today. Let’s buckle up and analyze everything objectively as it occurs.
That’s how we can make sound financial decisions along the way – even as the media screeches and preaches fear, uncertainty, and doubt (FUD) at every turn.
Joe Withrow
Senior Analyst, The Bleeding Edge
The Bleeding Edge is the only free newsletter that delivers daily insights and information from the high-tech world as well as topics and trends relevant to investments.
The Bleeding Edge is the only free newsletter that delivers daily insights and information from the high-tech world as well as topics and trends relevant to investments.
