The U.S. Treasury Secretary hints at "monetizing" federal assets, which assets might be put on the "shelf"?

At the beginning of this month, the new U.S. Treasury Secretary, Janet Yellen, stated that the U.S. would establish a sovereign wealth fund within the next 12 months and monetize the assets on the U.S. balance sheet, which could benefit the American public. This news has sparked widespread speculation in the market.

On February 12, senior analysts at Bank of America Merrill Lynch, Mark Cabana, Katie Craig, and Ralph Axe, released a report analyzing three potential asset areas that could be "monetized": fixed assets (PP&E), investments in government-sponsored enterprises (GSEs) (Freddie Mac/Fannie Mae), and gold and silver reserves.

However, the analysts also pointed out that the likelihood of taking action in the short term is very low, and the chances of any asset monetization are relatively low.

Fixed Assets: The Most Standard but Limited Impact

According to the latest data, the total asset size reported by the U.S. federal government is $57 trillion, while liabilities reach $45.5 trillion. The total fixed assets of the U.S. government exceed $13 trillion, mainly including tangible assets such as land. Among these, the Department of Defense holds approximately 64.7% of the government's fixed assets, excluding 22.8 million acres of land and rights.

Bank of America Merrill Lynch believes that while it is theoretically possible to achieve "monetization" by selling fixed assets, the actual feasibility is low considering national security implications and the need for congressional approval to dispose of these assets.

The analysts noted that selling assets does not necessarily raise funds for other projects unless the net effect can reduce the deficit, meaning total expenditures decrease relative to income:

"It is currently unclear whether the revenue from selling these assets would exceed the new costs of finding private alternatives. Therefore, the Congressional Budget Office (CBO) may need to assess the disposal of these assets to determine if it can reduce the fiscal deficit."

Bank of America Merrill Lynch also stated that over time, some fixed asset sales may be possible, but the expected cash raised will be limited.

Potential Monetization Targets: Freddie Mac and Fannie Mae

The analysis suggests that selling shares of Freddie Mac and Fannie Mae is another way to monetize U.S. assets. As of the end of fiscal year 2024, the U.S. government holds a total investment of $339 billion in these government-sponsored enterprises (GSEs), mainly in preferred stock.

Bank of America Merrill Lynch's mortgage strategy analysts pointed out that despite the complexities such as mortgage guarantees, Freddie Mac and Fannie Mae could potentially be privatized to raise funds. However:

"The privatization of Freddie Mac and Fannie Mae may take more than 12 months, which seems inconsistent with the timeline mentioned in Yellen's comments. Additionally, considering the risk of rising mortgage rates, privatization may occur slowly."

Revaluation of Gold Reserves: Significant Impact but Low Probability

Currently, one of the most concerning issues in the market is the possibility of revaluing gold reserves to monetize U.S. assets.

According to the latest U.S. government financial statements, based on the static value of $42.22 per ounce established in 1973, the book value of gold and silver reserves is $11 billion. If revalued at current market prices, the market value in 2024 would reach $688 billion, meaning the Treasury's assets would increase by $677 billion

Bank of America Merrill Lynch stated that the revaluation of gold in the United States will impact both the Treasury and the Federal Reserve's balance sheets. Although it is theoretically possible, there are certain legal issues, and it may be viewed by the market as an unorthodox practice, potentially raising concerns about the independence of fiscal and monetary authorities, and could lead to increased inflation risks:

"Essentially, the revaluation of gold would simultaneously loosen fiscal and monetary policy and undermine the independence of fiscal/monetary policy. Overall, we believe the likelihood of monetizing U.S. assets is very low until U.S. Treasury Secretary Janet Yellen provides more reliable details on how she plans to 'monetize the asset side of the U.S. balance sheet.'"