The Shift from Monetary to Fiscal Concerns in Global Economics

Tom welcomes back Lyn Alden, Founder of Lyn Alden Investment Strategy, to the show to discuss the intricacies of trade deficits, the role of the US dollar as a global reserve currency, and the broader economic implications for the United States. Lyn explains that a trade deficit occurs when a country imports more than it exports, and while some countries experience this cyclically, others, like India, have managed structural deficits by investing in long-term growth rather than overconsumption. The US, however, faces a unique challenge: its trade deficit is deeply tied to its status as the world’s reserve currency, which creates an excess demand for dollars and makes it difficult to manufacture competitively.

Lyn highlights that the dollar’s strength perpetuates this cycle, making imports expensive and exports cheaper, while also forcing the US to rely on foreign investment to fund its deficits. This dynamic has contributed to deindustrialization and a shift in economic power globally. She contrasts this with historical examples like the UK during the Bretton Woods era, where a similar situation led to stagnation before the rise of new powers like the US.

The discussion shifts to fiscal dominance, where large government deficits constrain monetary policy, making central banks more reliant on fiscal authorities. Lyn notes that the Fed is increasingly limited in its ability to control inflation due to these fiscal pressures. She also addresses Trump’s tariff policies, arguing they harm domestic industries and shift costs onto American consumers while failing to address the root causes of trade imbalances.

Inflationary pressures from tariffs are uneven, with specific sectors facing price increases while others experience disinflation. Lyn emphasizes that sustained inflation requires broader money supply growth, which has not been a significant factor in recent years. She concludes by exploring alternatives like gold and Bitcoin as potential reserve assets, suggesting that diversification into neutral reserves could help mitigate risks but remains largely theoretical at this stage.

Time Stamp References:
0:00 – Introduction
0:40 – Trade Deficits & Tariffs
5:02 – Sustainable Economics?
10:33 – Dollar & Liquidity
14:02 – Fiat Currency ‘Growth’
15:49 – Fed & Fiat Deflation?
21:40 – Tariff Model & Truth
25:05 – Gold, Bitcoin, & Dollar
28:30 – Trade, Tariffs, & Conflict
33:04 – Bond Market Impacts
36:36 – Taxes & Gradual Tariffs
39:05 – DOGE & Reducing Deficits
42:00 – Fiscal Dominance
46:23 – Devaluing/Lower Dollar?
49:43 – U.S. Gov’t Buying Gold?
52:20 – Bitcoin Reserve?
56:09 – Tariffs & Inflation Effects
59:40 – Watch for Fiscal Issues
1:00:50 – Wrap Up

Guest Links:
Twitter: https://x.com/LynAldenContact
Website: https://www.lynalden.com/

Lyn Alden is editor and publisher of LynAlden.com, where she has both a subscription and a free financial newsletter. She says, “Her background lies at the intersection of engineering and finance.” Her site provides investment research and strategy, covering stocks, precious metals, international equities, and alternative investments, with a specialization in asset allocation. Whether you’re new to investing or experienced, there’s a lot there for you.

Lyn has a bachelor’s degree in electrical engineering and a master’s degree in engineering management, focusing on engineering economics and financial modeling. She oversees the finances and day-to-day operations of an engineering facility.

She has been performing investment research for over fifteen years in various public and private capacities. Her work has been editorially featured or cited on Business Insider, Marketwatch, Time’s Money Magazine, The Daily Telegraph, The Philadelphia Inquirer, The Street, CNBC, US News and World Report, Kiplinger, and The Huffington Post. She has also appeared on Real Vision, The Investor’s Podcast Network, The Rebel Capitalist Show, The Market Huddle, and many other podcasts. She is also a regular contributor to Seeking Alpha, FEDweek, and Elliot Wave Trader.