Lyn Alden: Can Anything Stop The Runaway Train Of Fiscal Deficits?

**Lyn Alden** (0:00)
This is certainly an 18-month window where there's more risk to slowing the train than there have been for the past few years, but that I will ideally will take the under on how much it's going to slow by.

**Adam Taggart** (0:19)
Welcome to Thoughtful Money. I'm its founder and your host, Adam Taggart. One of the biggest forces boosting both economic growth and asset price appreciation over recent years has been the explosion of higher fiscal deficit spending. Today's guest, analyst Lyn Alden, predicts we'll be stuck with these large deficits for a long time to come, often repeating in a writing that, quote, nothing stops this train. Well, why? And if indeed so, what are the implications for investors? And furthermore, with a new US presidential administration publicly committed to reducing government spending, is the train truly unstoppable? For answers, we'll ask Lyn directly. Lyn, thanks so much for joining us today.

**Lyn Alden** (1:01)
Happy to be here. Thanks for having me.

**Adam Taggart** (1:03)
Thanks, Lyn. Thrilled to have you here. My audience is completely thrilled when I announced that you were coming on X a few days ago. People just went bonkers. So hopefully, we're going to give them everything they're looking for here. Before we kick off though, Lyn, I just want to thank you. In addition to coming on for this interview, you have kindly agreed to be one of the featured faculty at the upcoming Thoughtful Money Spring Online Conference on Saturday, March 15th. And I very much appreciate your involvement in that. We're going to speak at that conference specifically about your thoughts and recommended strategies for how investors can protect against the purchasing power of depreciation of fiat currency. I know there's a thousand other things we could talk about, but given everything else that's being talked about in that conference, I think that's a really good use of your expertise. But again, I just wanted to thank you for that. People are super excited about it.

**Lyn Alden** (1:59)
Happy to. Looking forward to it.

**Adam Taggart** (2:00)
All right. Okay. We'll look at lots and lots of questions here for you. But if we can, let's start with the intentionally broad question I like to start these interviews off with just so folks can think, sort of see through your eyes in terms of how you see the macro world. What's your current assessment of the global economy and financial markets?

**Lyn Alden** (2:18)
I think I would sum it up with volatilities back. I kind of viewed macro as somewhat boring over the past two years or so. I think ever since we had the regional bank crisis in early 2023, and that fire was put out, we've been in a fairly linear stretch of macro. Doesn't mean that there's nothing that's happening, but the things have generally been on roughly autopilot for about two years. And with the new administration and the rapid flurry of executive orders and other presidential actions, we're back in a period of uncertainty, higher volatility between currency pairs, and then of course, that has implications for asset prices. So I think the main thing is that uncertainty is dialed up. Things can change. You can have a much bigger position change in, say, a given month in this new environment than it would make sense to have over the past year or two, where trends generally just kept going in a certain direction.

**Adam Taggart** (3:18)
All right. There's that old saying, I think, by Lenin, and I'm probably murdering it, but it's something like there are decades where nothing happens, and then there are years where decades worth of activity happens, something like that.

**Lyn Alden** (3:30)
Exactly. Yes. Okay.

**Adam Taggart** (3:31)
Yeah. All right. So, okay. So, I guess you're relating to macro, but I guess you said volatility. I mean, I guess that's sort of what you mean for markets, right? Markets have kind of had a relatively smooth one-way ride since the start of 2023, and you think things could become more volatile going forward. They certainly have started out as such this year.

**Lyn Alden** (3:52)
Yeah. In general, asset prices, well, a lot of them were kind of on autopilot, but also just background liquidity effects, kind of trends that were continuing from one quarter to another without major rapid changes. Whereas now, in the first half of this year, we're already looking at obviously policy shakeups, but then also we could have liquidity pivots and things like that later this year as well. So I think that there's a number of things that kind of represent trend shifts that we're currently going through.

**Adam Taggart** (4:20)
Okay. Well, why don't we just dive into that then? So I've talked about liquidity with a number of people on this channel increasingly recently of late. We probably talked about it in the past too, Lyn. But in many ways, you can make an argument. It's probably been the most important factor, if not one of the most, maybe the most important factor, and just sort of explaining why we didn't go into recession as everybody thought we were going to starting 2023, and why the markets have had great back-to-back, 20-plus percent years. And it's interesting as people think about it as, well, this has been a tightening cycle for the Fed, right? So the pool has actually been getting drained. But no, I remember talking with you actually, and I want to give you kudos for this. This was probably over a year ago. When I was talking about how the Fed had hiked interest rates at the most aggressive pace that we've seen in our lifetimes, we were hanging at it higher for longer. We were talking about potential lag effects from that. But at the same time, on the fiscal side, sort of saying the Fed looks like it's jamming the brakes, the fiscal side though is jamming the accelerator. We talked a lot about that. We'll talk more about it today. And I asked you, which did you think was going to win out? And you said, I think the fiscal side is going to win out, and I think that has been proven true. The asterisk I want to point next to that is we're finding out, liquidity-wise, that the monetary policy wasn't really even as tight as we thought it was, because, yes, they had hiked interest rates and they had started QT, but they had also been draining the reverse repo program along the way. There's the BFTP program that the Fed put together after the banking crisis you mentioned there. So there actually were things that sort of on the net were creating net easing, net positive liquidity as opposed to draining the pond. So I guess where I'm going on this, Lyn, is, A, do you share that that assessment that liquidity has been one of the most explanatory factors of what's been going on? And if you do, then let's get into what are some of the things that could change that? Because yeah, there's some policy, potential policy changes, as you mentioned. There's also things like the approaching wall of debt refinancings that's coming up here. Even the US Treasury is going to have to refinance.