Lyn Alden’s Latest: Why Currency Devaluation Is Inevitable

The Breakdown

Blockworks

Investing, Business

4.8 • 786 Ratings

🗓️ 20 September 2020

⏱️ 37 minutes

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Summary

On this week’s “Long Reads Sunday,” NLW reads macro analyst Lyn Alden’s latest: “A Century of Fiscal and Monetary Policy: Inflation vs Deflation” The article looks at: When monetary policy is effective versus when fiscal policy needs to take over How short-term debt cycles add up to long-term debt cycles that have very different remedies Why long-term debt cycles inevitably end in default or devaluation Why the conclusion of the last long-term debt cycle in the U.S. – the 1930s and 1940s – suggests that devaluation is the most likely outcome

Transcript

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0:00.0	Welcome back to The Breakdown with me, NLW.
0:08.9	It's a daily podcast on macro, Bitcoin, and the big picture power shifts remaking our world.
0:15.3	The breakdown is sponsored by crypto.com, BitStamp, and nexo.io, and produced and distributed by CoinDes.
0:23.2	What's going on, guys? It is Sunday, September 20th, and that means it's time for long
0:29.1	reads Sunday. I'm going to keep the introduction this week very brief because our article
0:34.3	is very long. It is by the one and only Lynn Alden. You've heard Lynn on this show
0:40.9	and know how brilliant she is. I've called Lynn the breakout macro voice of the year, and I genuinely
0:47.6	believe that's true. Nick Carter tweeted this piece and basically asked if there was anyone
0:52.9	explaining things in macro as well.
0:55.0	And the topic is one of the most quintessential debates that we have right now.
1:01.3	The piece is called A Century of Fiscal and Monetary Policy,
1:05.5	Inflation versus Deflation, and I hope you enjoy it.
1:09.7	There has been a lot of discussion lately about how effective
1:12.8	monetary policy can be. In my view, the big debate between fiscal policy and monetary policy,
1:18.5	or inflation versus deflation, mostly comes down to looking at a long enough historical timeline to
1:24.3	see the full context. The effectiveness of monetary policy, including
1:28.3	interest rate manipulation and asset purchases, diminishes significantly when debt is high,
1:33.8	interest rates hit the zero bound, and the money multiplier is low. The role of monetary policy
1:38.8	doesn't stop then, but it takes a backseat to supporting fiscal policy. In essence, monetary policy is effective at
1:45.7	putting the brakes on an economy, but bad at stimulating an economy, whereas fiscal spending
1:50.5	has the opposite tilt. Let's dive into some history to see how it can apply in today's economy.
1:56.6	In this context, rather than focusing on one quarter or even one year ahead, it's a high-level
	...

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