Lyn Alden: The Fed isn’t Debasing the Currency Fast Enough
Tom welcomes Lyn Alden, Financial Newsletter Editor & Publisher, back to the show.
Lyn discusses global central bank policies and their effects on inflation. We now have a much different environment than what we had five years ago. The famous Powell pivot of 2018 may have been caused by the credit markets freezing up and not equities. They tried to raise rates until the risk of a recession ballooned.
It’s most likely that countries will continue to inflate their debts away because the only other option is to default. Typically, defaults only occur with countries who are unable to print their own currency. We should expect inflation to continue for some time and purchasing power to decline significantly.
Good forms of deflation comes from increases in productivity, technology, and improved energy systems. In a low-debt environment, things should get cheaper over time as we become more efficient. The bad type of deflation is when debt bubbles collapse, and we see a collapse of demand. Most economists see deflation as always bad, but in many systems deflation could be a good thing.
We’re entering a period where globalization is going to flat line or even begin declining. This will likely be a driver for inflation in the future.
Europe is going to have to focus on being a fiscal union, or they risk their monetary union failing to some extent. The United States works as a fiscal union, and the large expenses occur at the Federal level. States in the U.S. are relatively low debt. Most countries in Europe hold significant debt loads, which will be challenging.
We’ve seen energy prices rapidly moving up, particularly in Europe, rapidly well before the outbreak of war. Now we have additional risk factors in oil, wheat, uranium, platinum and nickel. The amount of currency creation and lack of capital expenditure on resource development are all drivers for the current issues.
Lastly, she discusses how the gold stock to high flow ratio can make a commodity easier to manipulate. This is because most investors are fine with only having a paper claim to the underlying metal.
Time Stamp References:
0:00 – Introduction
0:46 – C.B. Inflation Targets
2:53 – Fed’s Debt Endgame
7:01 – Today Vs. 1940s
9:52 – Good & Bad Deflation
11:56 – Soft Landing
14:17 – Rising Rates & The Dollar
20:01 – Deglobalization Impacts
26:48 – Europe’s Challenges
30:45 – Energy & Commodities
34:30 – Energy & Ukraine
38:30 – Green Energy & ESG
44:29 – Energy Policy Shifting?
46:26 – EROI & an Energy Cliff
49:18 – Demand & Commodities
50:45 – Risk & Diversifying
53:13 – Gold Stock to Flow
57:00 – Wrap Up
Talking Points From This Episode
- The Fed and why the U.S. will choose to deflate away debt.
- The differences between good and bad forms of deflation.
- Why globalization is likely going to flat line or decline and that will increase inflation.
- Problems in Europe around lack of fiscal policy agreement and there continue energy issues.
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. Whether you’re new to investing or experienced, there’s a lot there for you.
Lyn has a bachelor’s degree in electrical engineering and a master’s degree in engineering management, focusing on engineering economics and financial modeling. She oversees the finances and day-to-day operations of an engineering facility.
She has been performing investment research for over fifteen years in various public and private capacities. Her work has been editorially featured or cited on Business Insider, Marketwatch, Time’s Money Magazine, The Daily Telegraph, The Philadelphia Inquirer, The Street, CNBC, US News and World Report, Kiplinger, and The Huffington Post. She has also appeared on Real Vision, The Investor’s Podcast Network, The Rebel Capitalist Show, The Market Huddle, and many other podcasts. She is also a regular contributor to Seeking Alpha, FEDweek, and Elliot Wave Trader.