Peter Duan

If I could only listen to one macroeconomist, it would be Lyn Alden.

Her latest appearance on Jack Farley’s podcast is a masterclass on the Tariff Wars, the US dollar, and the  effects on Gold and Bitcoin.

Here’s a breakdown (with my added commentary): 

A 🧵: 

1/ Reserve Currency: Pros & Cons

Being the world’s reserve currency is a double-edged sword.

On the positive side, it creates global demand for the US dollar as it is predominant currency used in trade, global contracts, and central bank reserves.

However, that same demand which strengthens the US dollar, makes domestic manufacturing less competitive.

Over time, this has hollowed out our industrial manufacturing base.

Now, even with the political will to reshore, the U.S. fundamentally lacks the human capital and supply chain depth to scale quickly.

This monumental endeavor could easily take 5 to 10 years to rebuild the expertise and be globally competitive.

2/ China vs. USA – Who has the advantage?

In theory, the deficit country (US) has the economic advantage in a trade war. 

By definition, this is because we import more than we export. As such, tariffs will hurt the importing country (China).

While true, there is a big difference between economic power vs. financial power.

That is because China has acquired decades worth of US assets which can be sold to hurt the US financially.

For example, it is well known that Trump wants the 10 Yr Treasury bill to come down in order for us to refinance the $6.5 Trillion of US Debt coming due in the next few months.

China owns more than $750 Billion dollars worth of Treasuries. 

During this last week, they have already flexed their financial muscles by dumping Treasuries to push the 10 Year Treasuries higher.

3/ "Nothing stops this train"

Lyn Alden’s signature phrase refers to the long-term debt cycle, a concept popularized by Ray Dalio.

Here’s the basic idea:

Private sector debt builds → Crisis hits (i.e. Great Financial Crisis of 2009) → Government absorbs the debt.

At this level, the government only has 3 options:

Option #1: Inflate it away.
Option #2: Tax.
Option #3: Default on our debt.

Historically speaking, inflating the money away through money printing is almost always the inevitable solution.

Now, what about austerity measures (AKA cutting back on government spending)?

While some people can point to D.O.G.E. as potential source of austerity, much of the spending is mostly trapped into military spending and entitlements (Medicare, Social Security).

According to Lyn, from now until the 2030s, there is a low probability of the US government meaningfully reducing the fiscal deficit.

In other words, "nothing stops this (fiscal) train".

4/ Gold and Bitcoin

Gold and Bitcoin share one critical trait: they are both global assets with their value driven primarily by liquidity.

That said, most Bitcoiners wonder when it will decouple from tech (i.e. Nasdaq)?

According to Lyn, there is a scenario when the decoupling happens during stagflation.

For example, stagflation occurs when profit margins in tariff-sensitive industries are pressured, yet deficits remain high and the Fed is forced to resume QE.

In that environment, liquidity-driven assets, like Gold and Bitcoin, can materially outperform.

That is because they don’t depend on corporate earnings, they respond to capital flows.

Decoupling isn’t just possible.

Under the right macro conditions, it might just be inevitable.

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As an ex-Wealth Advisor recently featured in the WSJ, I create daily content on the most interesting story in Bitcoin. 

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