Lyn Alden: ‘Central Bank Losing Control’ – Financial Crisis Ahead

Anthony Scaramucci 0:00
If I was a true telling politician and was about to run a truth telling campaign, what would the policies be? From my end?

Lyn Alden 0:06
Well, it’s a good question. I mean, part of part of the reason I say nothing stops his train is because as you point out, the political incentives don’t align around trying to control that. And he’s sort of like, a four year timeframe. I guess, if someone were really trying to stabilize this. It would start with changing the structure of spending around security, medicare and defense, you know, you kind of have to kind of go blank sheet of paper, do we need 800 foreign military bases? Is that keeping us safer? No. And what’s the cost of all that? Is that that kind of thing, then it’s like, okay, so we have systematically kind of made our food less healthy. And now it’s kind of blooming into really high health care expenses on a per capita basis. If you look at Japan, I mean, they went through, they’re going through a significant aging problem. They’re much a more age than us, but they spent something like a third per capita on health care and get better outcomes.

Anthony Scaramucci 1:09
So today, we are joined by the legendary Lynne Alden, author of broken money. She’s one of the great minds of our time. I love speaking to her. I love learning from her. I’m sure you do, too. And so joining us now on speak up and back, back, Lynn Alden, by popular demand on speak up on the Wealthion network is the legendary Lenormand. So the first thing I want to ask you is, what is going on in the world of crypto, I feel like we’ve had a year. You know, Lenin said that in one day, you can have a decade of history. I feel like we’ve had a decade of history in the last five business days. What’s going on? Lynn? How are you? By the way? I’m

Lyn Alden 1:51
good. How are you? Yeah, so in that space, I think we’re seeing some broad rotation of political views. We’re seeing potential rotations around SEC views, we’ll see how that full at that unfolds in the coming days. But basically, you know, for while Bitcoin was and kind of broadly, the whole space was becoming somewhat of a partisan topic. But we’ve seen in the past week or so that there’s been significant kind of bipartisan shift, a little bit bipartisan support for it. So it’s not clean across party lines, which in the long run, I think is healthy.

Anthony Scaramucci 2:27
Okay, so is the ETF for the theory of going to be approved, I think today is the day they have to make this decision.

Lyn Alden 2:37
It’s hard to say because I mean, that could get invalidated by the end of the day. But basically, the people watching it closely, significantly increase their odds of getting approved, probably the non staking version. And so basically, the ETF holders would not get the state of reward that basically people that are that are staking can get that seems to be a potential line in the sand. I still think it’s potentially a little while away before that happens, even though you could get some initial approval starting to come in. I think it’s probably in the long run of time, we’ll probably see an ETF for it. Just because there’s already futures for it. Whether that extends to other assets, I think remains to be seen. But yeah, that’s, I would guess, probably in some intermediate period of time, we’d get one but it’s not something I follow as closely as, as maybe other people follow. Okay.

Anthony Scaramucci 3:30
So a lot of the thing I guess I follow you very closely in your book, broken money, and your macro views have been spot on. But they’re still in my opinion. And this is a compliment, by the way, so pay close attention. They’re not broadly accepted in the mainstream yet. And so you are a leading thinker in the world is coming your way, Lynne. But it’s not there yet. On there, I read your stuff. And I’m like, this is where the world’s going? What do you think that is? Why do you think we’re having a hard time getting what I would call traditional finance people to understand where the world’s going and understand what you’re, you’re saying in broken money and what you’re saying in your newsletters and so forth. I think a

Lyn Alden 4:19
large part of it is recency bias. And so people really tune themselves over what happened over the past 1020 3040 years, basically the span of a career depending on on how long they’ve been in the space. Whereas some of the some of the lessons of history that we can learn about the current period are things that are actually pretty similar to the 1940s which really only you find in history books and and long term data analysis and that kind of thing rather than anyone’s trading career investment career. And so the types of things that or, or in the modern time it’s people that have managed money in emerging markets, they’re often somewhat more well versed on these types of issues sometimes because it comes up more freak only. So part of it, I think is recency bias. I would note that basically, over time from talking to institutions from seeing some of the financial media change over time, it is it is becoming more of an understanding of some of the things we’re going through some of the fiscal challenges we’re going through, as well as some of the things that that digital assets like Bitcoin or stable coins open up to kind of the current macro situation, how they can be helpful, how they can be disruptive, depending on how you look at it. I do think there’s over time, there’s more and more awareness for these things that I’ve been covering.

Anthony Scaramucci 5:31
Okay. All right, it makes sense. I want to I want to do some play acting with you now. Okay, I’m the Federal Reserve Chairman. I’m drunk dialing in night, I’ve gotten your cell phone number from one of your friends. And I’ve reached you on the phone. And I’m a little concerned. So this is a drunk dial call to Lynn all then and I’m saying to her all the things that I can’t say in public, I’m saying the dollar has lost 25% of its value since January of 2020. I’m saying, Lynn, I don’t know what these guys are doing in the Congress. But they’re spending like gangbusters six 7% deficit spending, we’re at full employment. I didn’t learn that in school, I certainly don’t think there’s a economist at the Fed that would like us to be doing this, we’re going to likely have an entitlement and social security crisis and a debt spiral. I’ve read broken money. And I’ve also read the book how money dies. And the only good news for us is that the other countries are probably in worse shape than we are. Our economy’s probably stronger. But I’m really in a box. I don’t know what to do. And I don’t know what the policy moves are for myself. And I’ve got this blunt instrument known as jawboning and raising and lowering rates. But linby me for one day, and please tell me what you would do,

Lyn Alden 6:49
ah, probably threatened to resign is the funny answer. But there’s actually some truth to it. So for example, during during the pandemic, Powell called for more stimulus, so we kind of crossed the line where normally monetary policymakers don’t, you know, as a general rule, they don’t really comment on fiscal policy, they tried to be not not kind of directly partisan. But he said, You know, we’ve used a lot of our tools, there needs to be some fiscal support. Right. So he crossed that line in that instance, what I would say now is that what we’re seeing on the other side of it, is that there is this kind of overflowing amount of fiscal hitting the market. But he’s, he’s very reticent to comment on the fiscal side, because he kind of goes back to the position and not really seeing that his position. But I think at this point, a central banker, if they’re, if they’re trying to be kind of intellectually honest about this is time to say it’s hard to do any of my mandates, when deficits are this structurally big, because a central bank’s tools are primarily designed around accelerating bank lending, or decelerating bank lending. That’s really what they’re mostly geared toward. And we’re in a fiscal dominant environment now, meaning that ongoing, typical yearly fiscal deficits exceed the amount of new bank loan creation. And so those fiscal deficits are kind of a bigger impact on the economy in many ways, and those bank loans and they could they can drive things like inflation, they can drive things like nominal GDP, running hot with some of the inflationary consequences that come from that. And basically saying, Look, I don’t really have the tools to deal with what’s happening there. And so if you want those mandates to be in any way, met, there has to be a fiscal response. And so right now, it’s kind of politically acceptable for central bankers, or Treasury officials to say, look, in the long run a time, yes, there’s a fiscal issue. But that, but then they always caveat by saying, you know, we still have plenty of room, no one’s going to admit that, that the actual road is kind of running into issues under their watch. And I think that there needs to be more transparency around that issue. So I basically would say, Look, if you want me to be able to do my job, you need to you need to rein in yours a little bit. Otherwise, I would resign and say, look at you put in a position where I can’t meet my mandate, because I don’t have the tools to meet my mandates.

Anthony Scaramucci 9:06
Okay, and so, you know, I’m a student of human nature. So were you these people don’t like doing that. Right. You know, they, they say one thing, I don’t like Donald Trump, now we’re endorsing Donald Trump. Ted Cruz calls on the stumbling liar. Now he’s like, for election fraud. So they do this stuff, so he’s not going to resign. So now we’re going to continue on our road of play acting. I am the campaign manager for either campaign. And the reason why it’s either campaign is they both have the same populace message on spending. Both campaigns say they’re not going to touch entitlements, not touching Medicare, Medicaid, or social security. But I’m drunk dialing you again. And I’m saying, you know, we’re going to run the country off a cliff right? I’m gonna do it, because I need to get elected and the people of the United States can handle the truth of what is actually happening here in the United States. But let’s say they could handle the truth, and I could possibly We win the election with a truth telling message. What would you have me do? As our chief economist, if I was a true telling politician, and was about to run a truth telling campaign, what would the policies be? From my end?

Lyn Alden 10:16
Well, it’s a good question. I mean, part of part of the reason I say nothing stops his train is because as you point out, the political incentives don’t align around, trying to control that. And he’s sort of like, a four year timeframe. I guess, if someone were really trying to stabilize this, it would start with changing the structure of spending around social security, Medicare and defense, you know, you kind of have to kind of go blank sheet of paper, do we need 800 foreign military bases? Is that keeping us safer? No. And what’s the cost of all that does, that’s that kind of thing, then it’s like, okay, so we have systematically kind of made our food less healthy. And now it’s kind of ballooning into really high health care expenses on a per capita basis. If you look at Japan, I mean, they went through, they’re going through a significant aging problem. They’re much more aged than us. But they spent something like a third per capita on health care, and get better outcomes. So clearly, we have a kind of a healthcare spending, right?

Anthony Scaramucci 11:14
Is that a polite way of saying that the Japanese are less fat than the Americans? Is that a polite way of saying it?

Lyn Alden 11:19
Well, that is, that is a big contributor to it, it’s both, it’s both it’s eating habits, but it’s also we have a very processed food industry. So it’s not like, it’s not like one group, just their willpower gateway works over a short period of time, it’s the it’s the combination of human nature with this very processed, kind of background structure that makes it all the hard choices are just really, really easy to make. So it’s one it’s our food, both both individual decisions, food structure, the way we kind of structure healthcare payments, all of that results in basically just a completely ballooning health care expense, then you can do things like mean test Social Security, I mean, there’s ways you can, you can at least try to get that back somewhat on the track. But the problem is, the chance of any of this happening, especially all of it happening together is exceptionally low. And so I think that that’s, you know, structurally, it’s going to be very, very hard for any any politician even well, meaning ones to do that. And even if they get elected on that, probably as soon as they start enacting some of that they would not they would not win a second term, because they would not.

Anthony Scaramucci 12:22
Of course, they people don’t like the truth and they want to they want to they want you know, the Republicans that you’re seeing the Republicans are social conservatives, but they’re fiscal. They’re fiscally irresponsible. You know, both sides are fiscally responsible now, but they don’t care. They want the entitlements. The Tea Party 1012 years ago, there was placard saying, Get your government hands off our Medicare. And then people had to point out even though that that’s a governmental program, you know, what do you what are you doing so, so they don’t care? But this is the last question that I’m going to take questions from the audience. I want you to lay out for us as you do. By the way, what then happens, there is a looming crisis, we’re going to fiddle while Rome is burning. It may be three years from that maybe 10 years from now, maybe magically, through technology and levels of productivity could be 15 years from now. But the exponential move on deficit spending and interest rate payments by the federal government are going to cause a crisis. That’s my opinion. If, if you agree with me on that, and I can’t tell you what the timing is, but it’s going to happen. What is the crisis look like? How does it manifest itself? And how would somebody as an investor prepare themselves for it?

Lyn Alden 13:35
So the last time that developed markets ran into a debt crisis, was really back in the 1940s. We also see emerging markets run into them today. And so combining, you know, kind of what’s happening mathematically today, what happened in the past, that gives us some view of what this kind of thing looks like, obviously, technology’s different cultures different, there’s all sorts of details. Basically, I would say that you start to get certain emerging market characteristics in even a developed country when you run into fiscal problems. So it’s not like, it’s not like all the crisis happens at once. It’s not like you have a pre crisis than post crisis, it’s that it tends to be a bunch of events that kind of correlate together. And so a key thing that starts out with is the central bank losing control of its own balance sheet that it’s unable to ever kind of retain it back down, and they find themselves structurally monetizing fiscal debt, and always explaining why they’re not really doing that. But their balance sheets, you know, kind of going up cycle by cycle anyway at a faster rate than it used to. And so that’s kind of the first step. I would say that we’ve been in kind of that fiscal dominance situation since around 2019. Ever since we had the repo crisis that probably most most audience viewers aren’t familiar with, but there was a kind of a financial plumbing issue in September 2019. I would say that kind of marks the probably some of the earlier effects of fiscal dominance. And that wasn’t a crisis in the sense that people didn’t feel it but you Your dad and then you had the pandemic. And then you had the bank issue of 2023, you had the guilt crisis of late 2022. Overtime, these things kind of add up. So basically what it what it looks like is the difficulty of hitting a persistent 2% inflation target, which by the way is only that’s only added recently. I mean, their their definition of price stability they define is 2%. Inflation doesn’t have to be 2%. They could, they could aim for zero, but they don’t. But basically, their own thrown target is 2%, the way they measure it, you get a challenge of ever kind of sustainably getting back there, you get money supply growth that is continuing to be significant, an inability to raise rates as much as they want to in the face of persistent inflation, the ineffectiveness of those rates. Because again, bank lending is not the main issue fiscal deficits are the bigger component of the inflation that’s happening. You see more protectionism, you see, kind of like narratives like in emerging markets, they’ll say, look, it’s not our fault, the currencies problem is outside speculators are attacking it, or people are hoarding it, or you kind of put the blame on some outside entity or, or some small, unpopular entity, maybe you kind of wealthy people in general and kind of a vague group and you say, Look, that’s That’s why our currency is weakening the outsiders, the wealthy, whatever the case may be, you gotta have a scapegoat. Yeah. And I think basically, you see years and years and years of that. Now, some of them were kind of acute crisis happened, for example, in the mid 2030s, the Social Security fund runs out. And so if that’s not addressed in some way on either the spending or the revenue side, then basically, people would only get a certain percentage of their expected benefits. After that point, it would only be fed by current tax revenue, rather than the existing fund. So you start to get this kind of mini crisis along the way, but it doesn’t just didn’t just go from normal to Mad Max, it basically anyone who studies emerging markets, he’s like, a slow kind of train of events.

Anthony Scaramucci 16:59
So investors want to know this. And it’s a very simplistic question, we’re gonna ask it, are we gonna be okay?

Lyn Alden 17:06
I think we’ll be okay. I think you have to position yourself to be as okay as possible. I think you want to you want to prepare yourself for your own situation, prepare your portfolio in any sort of changing times, there’s there are always some people that are okay, and not okay. I mean, that’s true for any period of time. But basically, major changes in currency cycles are not the end of the world. They’re just an end of how certain things existed for a number of decades and then there’s some sort of realignment and then it’s in place for another several decades. So it is I would say it’s disruptive. But there are multiple ways to to be okay on the other side of it.

Anthony Scaramucci 17:45
Okay, well that’s a little confidence scary but a little confident right? We’re going to I know we’re limited on time so we’re going to ask you these questions quickly gold has been on a tear lately it’s mainly due to Central Bank buying at least this is the opinion of David from DC but the ETF holdings are low Why is gold less appealing to individual investors despite currency debasement? Is Bitcoin attracting these investors instead? Or what your what are your general thoughts on the gold Bitcoin equation?

Lyn Alden 18:13
So that can be part of it? I think I would add that it’s it’s foreign central bank buying and foreign private sector buying that’s the combination that’s really driving gold up you don’t see a lot of us buying partly because our stock markets near all time highs. So we have a lot of options to invest that have been doing very well that all compete with gold you it could be Bitcoin, you know, the recent Bitcoin ETFs it could be, you know, the s&p 500 it could be Nvidia stock, whatever, they whatever is drawing people’s attention, they have plenty of things that are invested in that are going up as fast as gold or faster than gold or you know that so they’re not really deal seeing the same thing. Whereas if you look at AT Gold relative to Chinese equities or gold relative to what’s happening in the yen, for example, those markets are being drawn to gold on average faster, which is mainly why I think you see that I think if you were to see an earning slowdown, a kind of more stagflation airy impact on US equities, and you start to see gold outperform US equities on some meaningful basis, then you might get more retail domestic inflows into gold ETFs I do think over the long term, Bitcoin is now a marginal competitor to gold. You know, if bitcoin didn’t exist, I’d probably own more gold than I have. Now. For example, whatever whatever bucket I have for bear asset monies, is now split a couple different ways. It used to be gold and silver. Now it’s gold, silver, Bitcoin. There’s a number of things now I think that that’s that’s around the margins that is a competitor, but it’s also just all investments in general. Lynn,

Anthony Scaramucci 19:51
thank you so much for joining us here on speak up. It’s always a pleasure to be talking and that’s the legendary Lynne Alden, who is I guess my favorite guests probably get upset all the other guests but it’s been a pleasure speaking to you on speak up. If you liked this conversation please share with your friends subscribe and rate on YouTube please leave us a comment even a negative comment we’d like all comments send us questions. We want to tackle the topics that you’re most interested in. So be annoying. Tap away and thanks again for joining us at speak up on the Wealthion network. In addition, if you like this video, you’ll like this one too. So go watch