Lyn Alden: The Fed’s Predicament – Tackling Rising Inflation with Limited Tools

Tom welcomes back Lyn Alden, Founder of Lyn Alden Investment Strategy, to the show to discuss the markets, the Fed, and the concept of fiscal dominance. Lyn explains that the unusual phenomenon of budget deficits widening despite low unemployment since 2016-2017 is largely due to demographics, leading to the concept of fiscal dominance where large deficits and high public debts can override monetary policy. She also talks about the two causes of inflation and the different tools used to combat them, such as fixing supply side bottlenecks, addressing what is causing the elevated rate of money supply growth, and looking at the long-term growth rate of truly scarce goods and services. She discusses the different ways in which the injection of a trillion dollars into the economy would affect price and asset inflation. Lyn explains that if the money is given to the top 100 wealthiest people, the effect will likely be asset price inflation, whereas if it is distributed to the bottom 50% of society, there will be more consumer price inflation. The two also discuss the challenge of increasing GDP and productivity without affecting the CPI, and Lyn suggests investing in scarce assets such as gold, Bitcoin, and high-value properties. Lyn then explains the current Federal Reserve policy of quantitative tightening, and how it has delayed a recession. She compares the US to Australia and Canada, explaining how in the US most consumer debt is fixed rate, and in Australia and Canada it is more variable rate. Lastly, she talks about the idea of reshoring manufacturing to the U.S. and how this could drive inflation, and the implications of the peak of shale oil production in the US, and how this could affect any manufacturing reshoring effort. Lyn also talks about her forthcoming book, "Broken Money," which covers the development of money, the current financial system, and the pros and cons of various types of money. She believes that Bitcoin is a good investment for the next two years, due to the tight supply-side dynamics and economic re-acceleration that may take place. Ultimately, she emphasizes the importance of remaining flexible and humble in the face of complex markets. Time Stamp References:0:00 - Introduction0:32 - Fiscal Dominance5:57 - Two Inflation Causes10:03 - Inflation Management15:40 - Inflation Definitions19:14 - Stimulus Effects21:44 - Historic Analogues24:50 - Rates & High Debt/GDP29:53 - Australia & Canada33:48 - Debt Servicing & Maturity40:54 - Delayed Recession?47:10 - China & West Manufacturing54:58 - Peak Shale Energy59:00 - Money Supply & Gold1:04:36 - Gurus & Complex Markets1:06:38 - New Book & Wrap Up Talking Points From This Episode * Lyn Alden explains that deficits and public debt can override monetary policy, leading to the concept of fiscal dominance. * Lyn discusses the challenge of increasing GDP and productivity without affecting the CPI, and suggests investing in scarce assets. * She believes that Bitcoin is a good investment for the next two years, due to the tight supply-side dynamics and economic re-acceleration. Guest Links:Twitter: https://twitter.com/LynAldenContactWebsite: 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.