President Joe Biden and House Speaker Kevin McCarthy met to discuss the federal debt limit negotiations on Monday. Direct negotiations over the debt limit had started to crumble over the weekend, with both sides accusing each other of playing politics.
Meanwhile, U.S. Treasury Secretary Janet Yellen on Wednesday maintained early June as a debt ceiling default deadline and said she will update Congress shortly about government finances. Once that deadline is passed, absent a deal, the United States will no longer be able to borrow money to pay debts and continue to fund government operations. However, Secretary Yellen has also indicated that it may be possible to prioritize some payments over others for as short period in order to keep some elements of the Government operational.
While we have faced multiple deadlines to raise the debt limit in the past and solutions have always been found, this time it feels a bit different given the highly charged political environment. There is increasing talk among some circles that the President could resort to a never-used provision of the 14th Amendment that was intended to ensure Union debts during the Civil War reconstruction period were fulfilled to raise the cap absent Congressional action. However, legal scholars doubt this is a viable option.
While judging from experience, we should probably just ignore this whole manufactured debate and assume that a solution will be found last minute. It is worth noting that a lot of lines have been crossed in politics in recent years, and it may be prudent to not assume anything.
What would a default mean for our sector? Nobody really knows, but one immediate outcome may be a push by major oil and gas producers around the world to look for alternatives for trading oil and gas in dollars. That could open up a can of worms that may be hard to put back.
While China has been pushing for the Yuan to replace the dollar as the global reserve currency, this is not a strong probability. More than likely we will see an increase in Euro trading.
The fallout from a U.S. default would likely cause shockwaves to international trade and a significant wipeout in stock market valuations. It is also important to remember that a debt limit shutdown is very different than a government shutdown, which we have experienced before. In the instance of a debt limit default, no government spending over the limit can occur. This is significantly different than a traditional government shutdown where “essential” operations continue.
While spending may still occur if it is not deficit spending, there is no real guidebook to how the Fed would act. Uncertainty and some elements of panic would be unavoidable. With that being said, smart money should still be betting on a deal, if for no other reason than neither party wants economic uncertainty and with a divided government it’s never really clear who the voters will blame for the stand-off. This week is critical, and we will likely have a better sense of how this is going to play out by the weekend.
RENEWABLE ENERGY INDUSTRY SEES DECLINE LAST YEAR
The U.S. renewable power industry experienced a decline last year in deployment for the first time in five years. Industry analysts see increasing pressure from trade constraints, supply chain issues, permitting delays and other regulatory challenges as the major drivers, according to a report from the American Clean Power Association.
Those delays resulted in a 15% slowdown in installations compared to 2021. This report should give ammunition to the renewable sector to push Congress to agree to a bipartisan permitting package this session. So far, the sector has pushed quietly in the background but has yet to be out front on the issue. With such a broad spectrum of the energy industry needing permitting reform in order to support new energy infrastructure development, hope remains that we will see a package this year.
Tim Tarpley, Energy Workforce President, analyzes federal policy for the Energy Workforce & Technology Council. Click here to subscribe to the Energy Workforce newsletter, which highlights sector-specific issues, best practices, activities and more.