How Trump Is Going To Make An Energy Miracle
I’m serious…
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If you made it past the headline, congratulations. You might feel like a dog that’s just been skunked, frantically pawing at its face to get rid of the smell. Ugh.
Guess what? It will go away in time, but not right now.
Turn Your Brain Upside Down And See What Happens
So, let’s do a thought experiment: turn upside down every negative thought and emotion you have ever had about Donald Trump and his incoming administration and see if most of the American voting public might have found a magic beanstalk in this field of weeds.
Can you do it?
I wrote a note a few days ago:
My conclusion was that there are two ways to view this election result:
The American public made a horrible mistake: 75 million Americans are a combination of ill-informed, ignorant, racist, and misogynist and chose a candidate who is going to seek retribution on his enemies and enact a radical agenda to reform America in the mold of Project 25 - American Taliban; or
The American public senses something is wrong with the American economy and trends in American society, and it is time for a reset.
If you believe the first, the next four years are going to be filled with outrage at every policy step Trump makes, every appointment to his cabinet, every judicial appointment, every interaction with the media, with international allies and enemies.
It will all reinforce and confirm the premise - that America made a horrible mistake and is headed toward a fascist dictatorship.
I spent the first Trump presidency down that rabbit hole. I am not going there again.
I am not going to list Trump’s achievements during his first term except to note the following:
Since China entered the World Trade Organization, manufacturing jobs declined precipitately;
During Trump’s presidency, the share of total net worth held by the bottom 50% of the US grew.
Not surprisingly, this mattered to working-class and middle-class voters - the bottom 50%.
Rising inflation was at least as much Trump’s fault as Biden’s, but this is not how elections work. The incumbent takes the hit for the bad and good things that happened during his administration.
Increasing the cost of living while capping working-class and middle-class wages by infusing more immigrants into the workforce was unpopular among working-class and middle-class voters.
This everything bad rabbit hole is not the path I am taking. So, let’s examine the second viewpoint.
I am opting to be curious:
I am curious about why the majority - at the current state of counting, ~3.5 million voters - felt something was wrong;
I am curious why the majority felt Trump might be the one to put things on the right path.
With a mindset of curiosity, I feel better placed to evaluate everything that happens more objectively and less emotionally.
How Is Trump Going To Fix The Problems?
Bringing curiosity rather than sarcasm to this question, I have the following questions:
How will he address the debt and deficit burden?
What about immigration?
What about foreign policy?
How about energy and climate?
These are the key issues.
Debt and Deficits
You can’t fix the debt without fixing the deficit.
He has appointed Vivek Ramaswamy and Elon Musk to a newly constituted Department of Government Efficiency (DOGE, named after Musk’s favorite crypto).
The stated goal is to cut ~$2 trillion from the deficit.
Since he can’t create another government department without congressional approval, this will be an unofficial department working through the OMB (Office of Management and Budget).
Its brief will be to reduce regulations and weed out government inefficiency.
Musk has a history of reducing costs where previously they were thought to be intractable in his SpaceX business.
Ramaswamy has…fewer credentials, so let’s see.
I have written about debt before, but there is undoubtedly an opportunity to innovate with the US gold reserves.
The 260 million ounces of gold held in the Federal Reserve Bank is held on the books at ~$44. Trump will ask them to turn it into the Federal Reserve and mark it to market at ~$2,600. He will then ask them to take the~$650 billion windfall, invest it in Bitcoin and use this to defense the national debt…maybe.
Trump’s comment, “Bitcoin is Oil,” is worth unpacking.
Between October 1973 and April 1974, the price of oil rose 400%, triggering a wave of investment by oil companies in non-OPEC countries.
It took away some of OPEC's strategic advantage. Since oil was transacted in USD, it created a vast wave of petrodollars, broadly defined as USD generated from oil sales, that was then reinvested in the US Treasury market, enabling the US to finance its deficits.
The expectation is that Trump’s policies will increase deficit spending, at least initially (unless DOGE is wildly successful).
Since the audience of foreign Treasury buyers has shrunk over the last ten years, more demand needs to be created.
Bitcoin can help. Many Bitcoin investors use stablecoins such as Tether (USDT) to trade in and out of Bitcoin. USDT allows 24/7 trading on the blockchain and is low-risk because it is backed by NQA (no questions asked) assets—mostly Treasury Bills.
As Bitcoin's price rises, USDT and T-Bills increase, creating more demand for T-Bills. The combination of Bitcoin and USDT operates similarly to petrodollars.
The connection was made by former House Speaker Paul Ryan earlier this year in a WSJ article.
Immigration
I’m not going to say much about this. It is unclear why Biden did not simply keep the policy he inherited from Trump’s first term in place. Prospective immigrants had to wait for processing outside the US, the so-called “Remain in Mexico” program.
Now, they can enter the US, claim asylum, file for work papers, and receive them less than a year after entry. Typically, they have to wait around four years for an asylum hearing. At that point, even if they are told to leave, they tend to stay.
That is going to change - and it ought to.
Foreign Policy
Again, this is not my area of expertise, but it seems likely that Trump will be ready to make deals in the Middle East and Ukraine. He will care less about how this plays on the front pages of the mainstream media than Harris would have. He will care about making a deal that looks like a win.
If his counterparts want to curry favor with Trump and give him concessions they would not have given to Harris, that’s a good thing.
Energy and Climate
Trump will withdraw from the Paris Accords, possibly in a way that makes it harder to re-enter.
That’s fine. It has been a waste of time and money.
The charts above show that, over 20 years, $4.5 trillion of investment has increased renewables' share of total energy generated from 1% to 7%.
According to the International Energy Authority (IEA), the projected spending to reach net zero by 2050 shows a ~$100 trillion investment in renewables, approximately the total world GDP in 2023.
The following table shows a comparison of the amount of electric generating capacity that could be provided by $4.5 trillion of investment using different technologies:
The first “Without Storage” column presents an attractive picture of renewable energy based on the levelized cost analysis often used to flatter renewables.
The second and third columns are more realistic based on the additional spending needed to compensate for solar and wind's intermittent nature.
I think 2x storage is more realistic since solar is dark for ~16 hours.
Total electricity consumed globally in 2023 was 24.4 TWh, of which renewables (ex-nuclear) provided 30%.
China has very skillfully set up the West to cripple its economic progress by rationing its cheap and abundant sources of energy in favor of heavy investment in renewables.
It has conveniently positioned itself as the primary exporter of raw materials—and many manufactured materials—to supply the renewable energy wave by leveraging its abundant coal resources.
This has weakened the West and strengthened China.
Trump seems aware of this. Because he publicly does not care about renewable energy and climate change narratives, he will be very pragmatic in embracing all the forms of energy with which the US is blessed to drive the economy.
Trump will be helped in pursuing this strategy by groundwork already laid by the Biden-Harris administration:
Biden’s re-shoring initiative has not been substantively different from Trump’s re-shoring agenda.
You know by now my view that energy is the base layer of all economic activity:
By taking an agnostic view to energy generation, unfettered by a fascination with renewable energy, Trump will open up drilling on federal lands, permit pipelines, facilitate transmission and grid enhancements, encourage the expansion of nuclear and natural gas, and incentivize private energy investment.
More energy will fuel AI. AI will fuel productivity, and increased productivity will drive real GDP growth. QED.
Takeaways
For your sanity and to better evaluate the challenges and potential solutions to America’s pressing macroeconomic challenges, it makes sense to be curious rather than continuously outraged by the incoming Trump administration.
While Trump’s policies will likely continue to drive spending and deficits, his focus on reducing deficits through DOGE could provide some mitigation.
He will attempt innovative approaches to debt reduction and deficit financing by embracing crypto and gold monetization - innovation is sorely needed.
His embrace of an “all of the above” energy policy will hugely benefit the US economy.
His focus on reducing regulation should free up private investment in energy and speed up the delivery of energy projects, including nuclear.
Taxes merit another entire newsletter. The stock market is now capitalizing future corporate and individual tax cuts to increase equity prices.
Thanks for the thoughtful article. There is a lot of potential for good in the Trump presidency. Let's hope that some of it comes to fruition.
The interest on the debt is now a very significant component of the budget, more then defense, and it looks like it will continue to increasingly consume resources unless something is done to stop it. Under Biden, the US significantly increased its federal govt spending as a % of GDP with the federal budget increasing by roughly 50% from 2019 to 2024. So the first step could be to roll back some of that 50% increase.
After that, we will have to hope that the federal govt can become more efficient so we can spend a bit less on it and that we can grow the economy sufficiently to increase tax revenues to help decrease the deficits. Trump was left with projections of $2+ trillion deficits as far out as the eye can see. That is not sustainable. We will have to cross our fingers and hope that, at least as a % of GDP, the debt load can be decreased over time.
If you look over at the EU and plot their economic growth over the past 15 years or so vs the US, the US has grown its GDP by about 50% more than the EU. 50%!
The EU is destroying their prosperity via their economic policies, especially with regard to energy. The folks pushing renewables continue to claim that they are low cost. However, the countries that are increasing their use of renewables continue to see their energy costs rise, significantly. How is it possible to not see reality here?