An interview with Representative Jim Moran in the National Journal reminds me that we haven’t heard much about sovereign wealth funds recently.  These are the large pools of money (in foreign currency) that were created as a result of large cumulative current account surpluses in some parts of the world (e.g., oil exporters, China, Singapore).  They were quite controversial back in mid-2007, with concerns being raised – by Congress and others – regarding various aspects of their operation.

There are still some issues around the lack of transparency of these funds, although a great deal of progress on this dimension has been made (including in and around the IMF) and we learned to worry more about black boxes in other parts of the financial system.  But these funds might be coming back as a discussion item; for example: can they, should they, would you want them to, invest in US banks to help speed a turnaround?

Personally, I think the underlying current account surpluses are going to fall – this is one likely implication of the decline in world trade for next year that the World Bank is forecasting and the counterpart of what must be an increase in US savings (and thus a fall in our current account deficit).  The accumulated stocks, in the form of sovereign wealth funds, will remain but they are no longer on explosive growth paths and this should take most of the edge off the conversation.  But how open the US remains to various kinds of capital flows – and on what exact terms – will be a prominent issue on the Congressional agenda as we move into 2009.  We do, after all, want people to buy the debt we will issue to fund the fiscal stimulus.