Fuck around and find out

Hey,

No, today’s subject line isn’t expressly about Trump and Musk trading blows on social media, though their feud is pertinent to the topics at hand today. Given this is a classic long-ass op-ed (nvo-style), we’ll get in there without further ado. The topic? All about how America’s gettin’ in the “fuck around, find out” spirit.

OPINION

There are lots of opinion articles out there about how bad the “Big Beautiful Bill” will be for “climate” and energy tech in the U.S., whether with respect to innovation, manufacturing, deployment, or whatever else you’re most concerned about. I’m not here to mine that territory more deeply. I trust those miners are digging away and faithfully singing the miner’s refrain while they’re at it.

Rather, I’m here to make a few bold assertions. After which, you can go! Take off!! Enjoy the weekend!!!

Of course, if you wanna stick around and watch me twist myself into knots and squeeze out a few more drops of high-signal ooze for those willing to read for a while, well then, be my guest. No wrong path, partners.

Even the possibility that the U.S. might lead the world in energy tech innovation, manufacturing, and deployment, decarbonization, and infrastructure investment over the next few decades is now nil. Cut it from the bookie’s board.

What happens with budget negotiations over the next 30 days, while certainly material to global greenhouse gas emissions in both direct and indirect ways, won’t change the path America is already on federally. What path is that? It’s an ambivalent amble towards greater isolation, characterized by a growing disinterest in continuing to double over backward and take on external leadership roles, especially in cases where American presence seems important but chafes with what the locals actually want. Notice: I can say all this without inserting any value judgements, at least not yet.

Make no mistake: We’re walking down that path. We’ve been doing it. We’re in no position to turn back. Heck, we’ve probably lost our way! The portal we came through may, for all we know, be closed.

Allegory and abstraction aside, I’m not here today to say that we shouldn't care whether or not countless funding measures for cleaner energy innovation, manufacturing, and deployment survive (we should). I’m also not saying America is doomed if the bill passes (it isn’t). I’m here to acknowledge a simple fact. The pole position for leadership in energy tech innovation, manufacturing, deployment, and infrastructure building, as well as decarbonization in general, now belongs to China. It’s over. Let’s adjust accordingly.

What crystallized this once and for all?

The morass of legislative uncertainty in which the U.S. is mired, coupled with growing common knowledge that no status quo U.S. federal administration can, let alone will, run a balanced budget (more on that soon). The combo of both is the overwhelming context that renders the content, i.e., whatever else happens over the next few years, moot.

That’s fuck around, find out, part I.

The jig is up! So it’s time to manage, invest, operate, legislate, and ideate accordingly. China is the A1-standard on deploying energy tech, building infrastructure across sectors, and testing novel technologies that could deepen decarbonization efforts. I can say all this and still accurately note that China is the world’s largest emitter of greenhouse gases. They’ve got the most significant liability, as it were. Don’t let the peanut gallery confuse you, they take it seriously. In fact, they’re quite intrinsically motivated to decarbonization. Air pollution from coal is a significant scourge in China. They’re truly laser-focused.

Now, let’s start with the deficit and then flatter the beautiful bill

 The emperor can’t afford new clothes

Let me state upfront that I’m not of the school of economic thought that the federal budget is akin to your or my budget, or any household’s. It’s not, as evidenced by the U.S.’s ability to run up a $36T+ debt bill in the first place. The fact that the vast majority of global commodity trading is settled in dollars, i.e., that the U.S. dollar acts as the reserve currency of the world, and that the U.S. can print as much currency as it reasonably well wishes, makes for a very distinct setup.

That said, we’re in an interesting moment where, not for the first time, but perhaps for the loudest time in recent memory, people on either side of the political aisle are voicing concern about the deficit and every administration since Clinton’s inability to run a balanced budget. The viability of the BBB, and the extent to which it would exacerbate the deficit rather than remedy it, should hit home for anyone still suffering from any delusion about whether either major political party is serious about running balanced budgets, let alone cutting into the ever-accruing cumulative national debt. C’mon man! They’re not.

This isn’t a dramatic insight for those who have thought critically about this for years; that said, it could be the nail in the coffin. Yesterday, amidst an intensifying breakup with the Trump administration, Elon Musk took to his owned and operated social platform to decry the bill as “pork-filled.” While not new information, Musk is the type of “missionary” whose message matters: A lot of people who ostensibly support Trump quickly agreed with Musk. Now, Trump and Musk are waging an all-out war.

For what it’s worth, (I’m a pretty casual sentiment watcher), this is probably the most in-party pushback I’ve seen either Trump administration get. TBD if it sticks. But again, whether it doesn’t isn’t that material. There’s new common knowledge being formed.

What is that common knowledge? It’s that the U.S. is on an unsustainable fiscal path. And that no one really has any practical, passable ideas on how to change that, especially considering the vicious demands of 4-year election cycles. I don’t envy those who run for President. Looking at what will drive the next leg up in government spending (below), there isn’t much I can see that can yield a sufficiently substantive cut in spending without pissing off the most important voter demographics. It’s not all military spending; not even close (#1 line item in the 14% discretionary.

Nor is a massive tax hike likely in my estimation, either. Mind you, even a balanced budget does nothing to chip away at existing debt. You’d need to run surpluses for that. You’d need to run mammoth surpluses for years to rain the U.S. national debt back to even 2022 or 2024 levels. We add another big ol’ $-T-$ every year at this rate.

Strikingly, interest payments alone are growing so quickly that they represent almost a ¼ of spending growth. That means that just the money the U.S. must pay to service existing debt is slowly (maybe not so slowly) picking up ominous momentum. That necessitates significant spending reductions elsewhere, and/or substantially increased revenue.

So, what does this new common knowledge—that no political party can, and maybe doesn't even care, about balancing the budget—portend?

Short term, maybe not that much.

In the long term?

It has all the makings of a bank run. The thing about bank runs is that trying to time them is the exact dynamic that sets them off. Those who consider themselves savviest may sit put for a while, but eventually, they get out, because the last thing they want to be is, well, last out the door. That breeds all kinds of pernicious herding behavior that could accelerate the time to when the U.S. deficit has serious consequences, from, say, a 2075 problem to, who knows! As evidenced by a variety of macro measures pertaining to U.S. government debt and what it costs to buy insurance (CDS) on it, global financial markets are already re-rating U.S. treasuries unfavorably:

Put succinctly, the U.S. has long enjoyed the ability to run up massive debts, owing to various factors. It’s run up one far in excess of what you or I or any American household could do. But there’s simply no guarantee it can do so forever. Sustainably. In perpetuity.

Jerome Powell has said as much himself ($2T of debt ago):

That point, the present concern even when discussing the future, has now been ‘trumpeted’ from the rooftops of the consensus concretization machines (I’m talking about Twitter and other algorithm-driven social networks). It’s on the radar, if not accepted by many to most key stakeholders globally who typically invest liberally in treasuries. These aren’t just big-shot central bankers, private bankers, leaders of foreign states, mind you, they’re American citizens, too. Heck, I cashed a long-running I bond the other day (small potatoes, but still).

When all these people think even for a split second longer about buying treasuries, which no one used to do, that’s a split second that can change the global economic order of the past 70+ years. It creates a very different set of dynamics that impact all economic sectors and trade dynamics worldwide. 10-15 years ago? There was talk of this stuff. It was a distant future concern. It was not discussed daily. Now, I don’t think we’ll go back.

That’s fuck around, find out, part II.

Beauty is in the eye of the beholder

The deficit dynamics discussed above alone have numerous (largely negative) implications for energy technologies and decarbonization efforts. When investors sour on debt issued by any party, it can create a self-fulfilling spiral that’s not just characterized by higher and higher rates, but by the fact that the borrower finds it becomes more and more difficult to dig itself out of the hole.

1. When entities issue debt, they issue it at an interest rate that attracts buyers and is manageable for the issuers and they do their best to run their business in a way such that they’ll be able to pay the debt service, i.e., the interest payments, and ideally some portion of the debt itself, or all of it when it comes due.

2. Now let’s imagine the entity in question is cash-strapped and needs to issue more debt. Its liabilities start to get a touch more problematic, as outside lenders and investors may worry about the creditworthiness of the issuer. Problems so soon!

3. To attract demand for new bond sales, the entity may need to offer higher rates to clear the auction. They may get the sale done, which keeps them in business, but now its debt service obligations have grown, and absent material changes in the success of the business (i.e., it doesn’t randomly start making it rain Ben Franklins), its cumulative debt pile is getting harder and harder to manage.

4. Rinse and repeat when it’s time for the next auction: Even higher rates on the latest bond issuance. You get the idea; this can spiral out of control.

5. You probably know someone for whom, hopefully in an at least moderately contained way, something not dissimilar has happened, say with a credit card.

This isn’t just the CFA Level 1. Whether at a municipal, corporate, or national level, these dynamics can be very detrimental to building new infrastructure, which requires a significant amount of upfront capital expenditure, often financed at least in part by debt. It’s especially germane when what’s being financed is risky or speculative, as is the case for many first-of-a-kind decarbonization projects. And it’s triply troublesome when there’s no government support buffer, whether in the form of grants or credits, for banks to underwrite against.

That brings us to the BBB, which would do away with exactly what I described in the last sentence above, namely, nix lots of government funding mechanisms for energy tech and decarbonization work. Specifically, in its present incarnation, the bill would, in the words of Sylvia Leyva Martinez, principal analyst for Wood Mackenzie:

How much might the U.S. lose in short order? Hard to say, but everyone with a strong team, access to reams of data, and the know-how to parse the bill has been hard at work churning out forecasts, like this one:

Is there a short-term money-saving benefit to eliminating incentives for the deployment of cleaner energy technologies (except for nuclear, which was spared) and countless other energy, agricultural, manufacturing, and industrial efforts to make America competitive again in the 21st century? Sure.

Is it worth it in the medium to long term, especially in a world where tax cuts and other elements of the BBB will increase the national debt anyway? Hardly.

Am I biased in wanting to see spending in these specific areas maintained? Duh.

Still, my bias is predicated on an appreciation of all the value that new energy tech deployment and decarbonization efforts could have for the U.S., often in areas where the country as a whole or its citizens could use substantial support. I can extoll their virtues without making a single mention of climate change, in fact! Similarly, given that all energy generation sources have merits and demerits, the fact that the bill would do nothing to subsidize fossil fuels is absurd. If the bill eliminated all energy incentives and handouts, intellectually, I’d be intrigued. Of course, and alas, I won’t be indulged in such a pleasure.

• Solar + storage: At the most basic level, electricity costs are already high in the U.S., and the country is on the precipice of larger forecast load growth after decades of relatively stable demand increases. The preponderance of new generation and storage that gets built in the country is also solar and batteries. I don’t think solar and battery deployment goes away sans subsidy support, but considering these are among the most versatile, fast to market, and flexible sources of new energy supply and storage right now, cutting support for them feels like sending your ace back down to double-A ball.

• Manufacturing: The U.S. is hamstrung by its dependence on China for many things, whether batteries themselves or the metals and minerals needed to make them, as well as many other critical energy generation technologies. Rescinding support for the deployment of many energy technologies is bad for domestic demand for them… which is bad for domestic manufacturing. If I were building a battery factory in the U.S.—a risky endeavor no matter what—and I saw that incentives for EVs and BESS deployment are about to get yoinked, I’d review my legal covenants. Nightly. Gotta know your options! And if I had been considering setting up a factory, the entire calculus would change now.

• Defense implications: The above point can also be construed as a defence concern. The frontlines of the future, as we’re seeing play out live in Ukraine and Russia, aren’t just contested with the soft power of massive missiles and aircraft carriers. Just last week, Ukraine blew up close to a third of Russia’s nuclear triad, hitting 41 Russian aircraft up to 4,300 kilometres within Russia’s border. No boots on the ground. Just remote-controlled and battery-powered drones. The hardware stack for a lot of mission-critical hardware isn’t dramatically dissimilar for decarbonization or defense applications.

This is what happens when federal policy is, too often, “the opposite of what the other guy did.” It’s the difference between serious governance and what I call spite and spittle governance. Not sold on how spiteful a lot of the BBB is? It has special tax treatments for gun silencers. I.e., the things that make lethal weapons quieter. Easier to use more often in close quarters and in rapid sessions. Will this save some of Trump’s gun-donning base some money? Sure. Is it, more importantly, an obvious slap in the face of voters—of whom there are many—who support much more stringent controls of gun modifications, to say nothing of who and under what circumstances can buy a gun in the first place.

To be sure, both sides are guilty of operating this way, of tearing down what came before them every four or eight years and going all tabula rasa to great fanfare. That’s not a sustainable path forward either, is it now…

It’s as they say. Play stupid games. Win stupid prizes.

We’ve had 20+ years with no shortage of that. Time to play long-term games again!

Speaking of long-term games, waddya reckon the CCP might think of the BBB? I’ll hazard a guess, though I’m glad this is email and not live, as I wouldn’t dare try to do a Xi Jinping impression. I can hear them chuckling in my mind, though.

Why do I imagine they’d love it so? Well, for one, the clip at which it will supercharge conversations about the U.S.’s debt problem will force U.S. attention inward rather than outward. Which is China’s favorite thing; in moody teenager (or newsletter writer) style, they love little more than being left to their own devices, sans supervision, while they plot, I dunno, taking over Taiwan.

The specifics of the bill would delight them, too. The U.S.’s effort to rival China in solar and battery manufacturing and deployment was always going to be a David and Goliath-like endeavor. But to rob David of his sling and stone? Now, the danger of an unlikely humiliation or fourth quarter comeback has been zeroed out.

The CCP has been playing a long game for quite some time, whether with respect to dominating entire supply chains for the very technologies (EVs, solar, and battery energy storage systems) best poised to scale in the current decade. They aced it. Companies like BYD and CATL must seem to other manufacturers like at least two of the four horsemen of the apocalypse. Sure, you can erect strict and stringent import controls, making it impossible to bar these vehicles in the U.S. Or, as in Brazil, where Brazilians are saying, “Heck! Y’all got some cheap, safe, efficient, fast-charging EVs over there? Gimme.

If the U.S. wants to essentially neuter itself and its domestic efforts to compete with China's critical supply chains and technologies, some of which are fan favorites like solar and batteries, while others are fringe, yet innovative ideas like cloud seeding, well? Perplexity told me there are at least half a dozen ways to say “beautiful” in Chinese. Maybe we should learn a few.

The caveats

As always, I’m not here to do some big doom and gloom thing about how everyone should look to the exits and find out the nationalities your grandparents might be able to claim to get you a passport somewhere far afield. The U.S. has, as it always has, plenty of strengths. Despite months of milquetoast and utterly disorienting federal policy—not to mention highly questionable and criminally suspect presidential pardons notwithstanding.

• For one, the United States continues to produce more oil and gas than any other country on Earth. Folks often forget that, so it’s worth reiterating. That puts the U.S. in a position of power; frankly, we don’t stop enough to appreciate just how ludicrous the endowment of the U.S. is. We also produce more natural gas than any other country on earth. And many countries need our oil and gas, especially liquefied natural gas, which we’re now the world’s largest exporter of.

• Secondly, the U.S. military remains a formidable presence that many countries around the world have and will turn to in times of distress. Are questions slowly creeping in here, too, about, you know, the real willingness of the U.S. to meaningfully activate in wars? Totally. Regardless, we’re not anywhere close to a point where questioning the U.S. military’s might is serious discourse.

• Thirdly, there’s entrenchment and precedent. Ungodly, labyrinthine market and financial systems depend on and in turn reinforce the primacy of the U.S. dollar, all of which cuts across facts such as that global commodity trades are settlement in dollars the lion’s share of the time and that the U.S. dollar accounts for ~58% of all official foreign exchange reserves held by central banks worldwide (for ref, the euro claims ~20%). Heck, some countries straight up peg their own currency to the value of the dollar to help manage inflation. Dollar’s king for them, too!

• PERHAPS MOST IMPORTANTLY, on top of the ludicrous endowment of natural resources, we’ve also been stellar historically at attracting talent, at wooing the best and the brightest to work in the U.S and accelerate astounding innovation.

The fourth point will be most suspect in the short term. Already, without even an inkling of what is going on at major universities like Harvard and Columbia (seems bad)!, signs of brain drain are percolating. Take this example, which I stumbled upon yesterday:

Is that really what we want? Someone’s in charge, you know, wayyyyyy back there, making sure this stuff gets reconciled at the last minute. Right? …Right? *queues crickets*

What’s that? I feel it too. A curdling fog is rolling in. It’s still dark out. The silence is eerie. Not sure anyone’s coming to save us!

I’m here, though. And I reckon a few other Keep Coolers are too, right at this moment. There’s comfort in that. And, I am abidingly confident that many germs, seeds, and sparks are here too. That the creative energy alive in all of us as we go to the next tab or, dare I say it, go for a … walk?! and go back out into the world and chip away at whatever you decide to tackle today. Perhaps not the national debt. But maybe something you put off for a bit. Or a lil’ slice of dollars and cents debt that’s lingering and pops up as an intrusive thought once in a while, the way gnats whine in our ears. Report back—lmk what you do.

There’s more to this story than that the emperor has no clothes. Really, the emperor will continue to splurge on clothes, even though he shouldn’t. And we’ll see it all.

As I hit at many points today, this isn’t really about whether the BBB passes or not, either. It’s about how the mere viability of the BBB was a watershed moment. A straw broke a camel’s back. In the same way that many people cringed when Biden's senility became unignorable, now, millions of disgruntled Americans know that, whoever the President is, whatever the color or the quadruped mascot, balanced budgets are a fever dream.

What’s worse? There is no else. No one else is coming to save us. The Federal Reserve? Sure, to their credit, they’ve done a decent job navigating all the hoopla of late. Will they get cowed into cutting rates to make debt service payments more tenable? Maybe? Could that offer some relief for energy tech and infrastructure deployment? Definitely.

Will it be enough? Doubt it.

The most disheartening realization I keep coming home to is that many of our world leaders have little deep, systems-thinking-level insight into any of what’s going on. Heck, Trump’s barely reading his briefings anymore.

When I was a wee boy, the question of whether the U.S. would remain the supreme leader of the free world, in perpetuity, was discussed dialectically. But it was always overtly, or, at minimum, subconsciously accompanied by a complicit understanding that these were questions that wouldn’t matter for decades.

Today, if I put my pointification where my mouth is and make a bet out to 2050 or beyond, I’d call it a coin flip. No Country For Old Men Style. By calling it a coin flip, I’m suggesting we could very well face significant pressure on U.S. Treasuries, pressures that send tremors through global finance and, who knows, spike silver prices to $100 an oz or something ludicrous overnight (definitely not financial advice) before 2050.

These may then ebb and be remediated and do little to change the composition of global markets. Or it’ll change everything. Either way, don’t expect the U.S. to spend a dramatic amount of energy on external global affairs to the extent it can avoid it soon. It’s got a ship that needs righting near its own shores.

Here’s the classic game.

What do you stand to win? Everything. Or, at least, the maintenance of your status quo, your wealth. Your unparalleled† standard of living. A healthy, safe life on the whole.

What do you stand to lose? You know the answer.

So call it.

† assumes an American standard of living, which is outrageous

Enjoy the weekend,

Nick