"World of Chaos" as Financial System Buckles | Lyn Alden

**Lyn Alden** (0:00)
I think wars contribute to bigger sovereign debts, but also sovereign insolvency can lead to more extreme decision making, where you have the US get more aggressive in terms of taking over its own industry, or get more aggressive in terms of foreign policy and trying to push the problem elsewhere.
And so, you know, it's easier when you have an enemy to blame, to explain why, you know, why is gas high? It's their fault. Why is inflation happening? It's their fault. Why, you know, if you're not doing it now, but if you do yield curve control, it's like, well, why aren't you letting the market set long term rates? It's like, well, there's a crisis and we have to beat the bad guys. It's much harder to do when it just accumulated self-imposed errors and basically just kind of an aging hegemon.
And so I just yeah, we're in that more world of chaos now. And obviously, we're in a headline-driven market. Things can change, let alone month by month, but day by day, compared to a more linear type of regime.

**Anthony Fatseas** (1:14)
Hey, everyone, this is Anthony Fatseas, and welcome to the WTFinance Podcast, which is my effort to help find the most interesting experts to talk about what is really happening in the world of finance, geopolitics, macroeconomics, and investing. It'd mean the world for me if you could like, subscribe on your favorite audio platform and share with your friends and family. We've had the pleasure of being listened to by millions of other viewers, and we'd love to reach millions more to help decode what's really happening around the complex world that we live in. Thanks again, and let's get to the show.
On this episode, I have the pleasure of welcoming back Lyn Alden. Most investors are still trying to make sense of the current moment using a framework built for a different era.
Fiscal dominance is now the defining force in markets. Debt is rotating from the private sector onto the sovereign level. And the next release valve is inflationary currency debasement and major political resets. The Iran conflict has accelerated every dynamic that was already in motion. Lyn Alden is the founder of Lyn Alden Investment Strategy, the author of Broken Money, and one of the most rigorous and original macro voices in finance today. She isn't here to give you the consensus view. She's here to explain the regime that consensus has not yet caught up to. Lyn, welcome to WTFinance.

**Lyn Alden** (2:23)
Thanks for having me back. Happy to be here.

**Anthony Fatseas** (2:25)
No problem. We spoke at the start of this year, sort of February. A lot's definitely changed since then in geopolitically, in macroeconomics, economically, you know, markets, et cetera. So it's been quite interesting. So I'd be interested in here, you know, your overlay of or your overview of what we're currently seeing in the economy and how that's then flowing to geopolitics and everything else.

**Lyn Alden** (2:46)
Right. So a lot of things are still in play from earlier this year. All the kind of major macro overlays are still fundamentally the same. Fiscal dominance, the US structural trade deficit, the associated kind of broadening out of global reserve and currency trading practices. And of course, what's new is, you know, the geopolitical implications of fallout from the war, as well as the more immediate kind of energy or commodity shortages.
And so, you know, this is obviously an evolving situation, so many things can change. You know, earlier in the conflict, people would say, well, does this impact your gradual print thesis? So, you know, I've been, you know, for a while saying that the Federal Reserve is going to stop reducing its balance sheet. It's going to shift toward balance sheet expansion, but that apart from a few scenarios, that expansion should be pretty gradual. And so when war break out, it's like, okay, are we entering potentially a faster scenario? And my view was, and I wrote about this, you know, back at a time in a newsletter, that the risk for a more kind of accelerated scenario has increased, but it's still not my base case, that the gradual print is still kind of my base case. And once into this, that so far is the way it's playing out, that this is not materially affecting, you know, deficits, money printing, you know, kind of like the breaking of a stock market or the bond market or anything like that. And obviously, it challenged it in multiple ways, but it's still largely the same. If anything, the performance of some of the semiconductor stocks has out kind of paced, at least in the stock market, the impact. Geopolitically, I think that we're probably the biggest takeaway, not just from this one thing, but I mean, this is like the most recent kind of and most like in some way shocking example. But basically, we are entering a more of a wild west in terms of geopolitics. So instead of kind of the post World War II, and then especially kind of the post fall of the Soviet Union world, where you have kind of a seeming stability of one particular hegemon, obviously you have instability in certain markets, especially emerging markets, sometimes caused by those markets, sometimes actually ironically caused by the US, and like there are kind of meddling. But you still had a relatively kind of stable rules based understanding of the world, even it wasn't always true, that was kind of the perception and somewhat true. But now, we are kind of more firmly entering kind of an eat or be eaten or wild west type of scenario, where Russia invaded Ukraine, the US is kind of taking its unilateral action with Israel on Iran, and countries kind of look around, and of course, all the terrorist situations as well, and the trade wars and everything else. So countries looking around and saying that they need kind of plan Bs, they need resilience as part of their planning, because things can just happen, things that would be considered low probability can just kind of happen a week from now, a month from now, a year from now. And so that kind of adds complexity to the global world investing. It's good for kind of neutral assets, things you can self-custody or things that kind of benefit from that chaos.