Lyn Alden: While "Nothing Stops This Train", Imminent Economic Crisis Is Unlikely
What this covers
REGISTER FOR THOUGHTFUL MONEY'S SPRING ONLINE CONFERENCE AT THE EARLY BIRD DISCOUNT PRICE at https://www.thoughtfulmoney.com/conference
Today's guest has long been warning that the US -- as well as many other countries -- is now in an era of fiscal dominance.
That's when fiscal spending gets out of control, like a runaway train.
It becomes so large that it becomes the primary determinant of economic growth and inflation -- steamrolling over any impact of monetary policy or private sector lending.
Today's guest is famous for predicting "Nothing stops this train"
But can its momentum be slowed, buying the system more time?
And does AI offer a chance to improve the situation?
For answers, we are very fortunate to welcome back to the program Lyn Alden, investment strategist & author of the book "Broken Money: Why Our Financial System is Failing Us and How We Can Make it Better"
#deficit #artificialintelligence #inflation
0:00 Reaffirming the Train Thesis 2:10 Macro Assessment with 2026 Optimism 2:54 GDP Growth and Deficit Feedback Loop 3:18 Productivity Offsets to Money Printing 5:17 Clarification: Train Runs for Investable Horizon 5:53 Deficits Already Mattering with Consequences 6:30 Bifurcated Economy and Political Turmoil 8:06 Trade Imbalances as a Key Variable 8:43 Administration's Trade Policy Prioritization 10:01 Tariffs via Emergency Authorizations 12:58 If Lyn in Charge: Handling Trade Differently 13:30 Global Reserve Currency and Structural Deficits 16:48 Resizing Global Role for Multipolar World 18:43 Foreign Ownership of US Assets Chart 19:55 Potential Market Impact from Reduced Inflows 20:30 Discouraging Inflows with Taxes 23:52 Current System: Dollars for Asset Ownership 24:33 Expiration Dates and K-Shaped Unrest 26:52 Fixing Symptoms vs Foundation 30:20 Alternative to Fiat Dollar 31:19 Insolvency and Default 32:19 Sovereign Default via Debasement 35:26 Emergency Landing Description 35:50 Resigned to Crisis 36:38 Long Process with Crises 38:02 AI Impact on Trajectory 38:50 AI in Companies 39:56 AI Limitations Example 42:20 Tools Not Magic but Powerful 43:56 Productivity Boon 45:20 AI Masks Debasement 45:51 Energy as Biggest Factor 46:22 Electrical Production Deficit 47:46 AI Bottleneck 50:00 Dark Side of AI 51:44 Job Displacement Concern 52:56 Makes Services Cheaper 54:49 Period of Churn 56:26 Blue Collar Buffer 59:01 Advice for Workers 1:00:15 Experts Focus on Value 1:00:40 Market Outlook for 2026 1:01:37 Value Rotation 1:02:48 AI Capex Issue 1:05:01 Market Grinding Higher 1:05:26 Reaction to Tommy Costa (Commodities Transfer) 1:06:21 Long Commodities and Energy 1:08:29 Parting Advice for Investors 1:13:33 Three-Pillar Portfolio Strategy _____________________________________________ Thoughtful Money LLC is a Registered Investment Advisor Promoter.
We produce educational content geared for the individual investor. It’s important to note that this content is NOT investment advice, individual or otherwise, nor should be construed as such.
We recommend that most investors, especially if inexperienced, should consider benefiting from the direction and guidance of a qualified financial advisor registered with the U.S. Securities and Exchange Commission (SEC) or state securities regulators who can develop & implement a personalized financial plan based on a customer’s unique goals, needs & risk tolerance.
IMPORTANT NOTE: There are risks associated with investing in securities.
Investing in stocks, bonds, exchange traded funds, mutual funds, money market funds, and other types of securities involve risk of loss. Loss of principal is possible. Some high risk investments may use leverage, which will accentuate gains & losses. Foreign investing involves special risks, including a greater volatility and political, economic and currency risks and differences in accounting methods.
A security’s or a firm’s past investment performance is not a guarantee or predictor of future investment performance.
Thoughtful Money and the Thoughtful Money logo are trademarks of Thoughtful Money LLC.
Copyright © 2026 Thoughtful Money LLC. All rights reserved.
Source description (no synthesized summary yet).
Lynn Alden argues that the US fiscal deficit will persist indefinitely without materially disrupting the economy in any investable timeframe, but this stability comes with serious long-term costs including political polarization, a bifurcated economy, and structural currency overvaluation that requires eventual rebalancing—a process best managed through gradual policy changes rather than crisis-driven disorder.
- Large fiscal deficits are structurally persistent because Congress will not materially reduce them, and the system has enough 'highway ahead' to continue functioning for 3-10+ years without collapse
- The trade deficit is a necessary feature of dollar dominance but creates collateral damage: an overvalued currency that kills manufacturing competitiveness and concentrates wealth, driving political instability
- Productivity growth from AI can temporarily offset monetary debasement and extend the current trajectory, but cannot solve the underlying insolvency problem without painful reforms that no politician will implement preemptively
This asset isn't compiled yet
You're seeing its claims, ranked. Compile it to build the argument threads, weight them, and check each claim against your library — the full view.
The deficit is already mattering and has been contributing since the late 2010s to ongoing political polarization and a bifurcated K-shaped economy with divergent outcomes for different income groups.
“people often ask when will the deficit matter. I've been arguing it's already mattering. So literally since the late 2010s I've been talking about how um this will contribute to a period of ongoing political polarization. Uh and that's only gotten more and more noticeable over time. Uh and it contributes to things like the the you know K-shaped economy or the two-speed economy”
AI and data centers create both opportunities and constraints: they require enormous electricity generation capacity, which creates NIMBY resistance as communities don't want data centers or associated power plants near them, and they create political and regulatory complexity that slows deployment.
“Um, that that people say, 'Okay, sure, AI data centers are fine, but I don't want them near me, right? I certainly don't want them making my electricity bill go up.'”
Policy errors and restrictions often have unintended consequences that make problems worse: for example, policies restricting capital pools from buying homes to address housing affordability ironically make housing more expensive by reducing the housing supply that such capital would otherwise finance, because the root cause is permissioning and not incentives for new construction.
“you see in New York, you know, they'll say, 'Okay, well housing is expensive. Let's do a bunch of policies that ironically probably make it more expensive, right? Like let's do things that make it uh disincentivize building new supplier every want to be a landlord.”
The US trade deficit is a necessary feature of operating the global reserve currency: dollars must flow out into the world for other countries to use dollars, and the primary mechanism is running structural trade deficits.
“we we have the global reserve currency we we run the biggest fiat ledger that most other countries tie into in various ways uh and that gives that ledger like an extra monetary premium. Um and another way of looking at it is the whole world needs dollars. How do we get dollars out into the world? The answer is we run structural trade deficits and so dollars pour out into the world.”
The trade deficit benefits some Americans (asset owners, the government) but harms others (manufacturers, workers in traded goods sectors); the costs of dollar dominance are now as large as or larger than the benefits for most Americans outside government and finance.
“the government loves that those capabilities...But the downside is that because we are the dollar has an extra monetary premium on it because basically everyone uses it globally or at least every business and government uses it globally uh it makes the dollar kind of structurally overvalued on a trade basis which is how that mechanism forces the the deficits to continue uh which makes it very it's a headwind against lower margin things. So in the US we can still do healthcare and software and financial services uh but we have trouble with lower margin things which primarily includes manufacturing...and especially if you're not the government, if you're not the government, your cons are way bigger, generally speaking, than than the pros.”
Foreign capital inflows purchasing US financial assets (stocks and bonds) create a self-reinforcing dynamic where countries must import from the US to acquire dollars, which they then invest in US assets, driving up asset valuations; this benefits US asset owners in the near term but results in Americans selling ownership stakes in appreciating assets in exchange for imports of depreciating goods.
“the downside is then they take those dollars and then they buy our appreciating assets, they buy our corporate equity, they buy our real estate, they buy our private equity. Uh so actually what we're doing in the when you do the full accounting is we're buying on average depreciating assets more than we're selling and we're selling percentages of our appreciating permanent capital stock uh to the rest of the world with a dollar just being the intermediary.”
When there is fiat currency that market participants know will lose value over time, this creates a perverse incentive structure where entities systematically short the currency by borrowing as much as possible and buying durable assets, because currency debasement is predictable and you can arbitrage by owning real assets; whereas in sound money systems, entities would not take out mortgages they don't need because the currency would maintain purchasing power.
“when you have kind of ever ever uh money that always gets weaker, there's all these entities that will then okay say, well, I'll borrow as much of that as I can and buy better assets with it. So I'm persistently shorting fiat currency and owning assets...if money is scarce, if you have sound money, um there's, you know, there's less of reason to do that. No one takes out a a mortgage in gold because gold of a very long arc of time generally outperforms the average house...But they take out mortgages and dollars even if they don't need a mortgage. They could afford the house but they all finance it anyway historically because why not short fee a currency for 30 years.”
Rebalancing a portfolio to take advantage of market dislocations and shifts requires having 'dry powder' (cash equivalents) set aside specifically for the purpose of buying when valuations become attractive, which is one reason cash/bonds are a pillar despite low near-term returns.
“another one is cash equivalents uh for you know major selloffs to have dry powder to rebalance”
The US is already functionally insolvent: the base money supply cannot be converted to hard money while circulating IOUs (treasuries, bank deposits) are many times larger than the base; a default must occur eventually through debasement.
“Part of the nothing stops his train thesis is we're already insolvent there. There's we can't realistically um get out of this without a default, which is to say there's a certain amount of base money and then there's all these IUs built on top of it. And those IUs are multiple times the the base money supply. And the problem is you you can't go to hard money when you have that crazy IOU base money mismatch.”
White-collar workers should expect their competitive position to deteriorate if they do not become fluent with AI tools; the winners will be those who can use AI to multiply their output, not those who compete directly against AI without tool skills.
“what you're potentially going to lose your job against is someone else who's doing the same job as you, but uses AI tools and therefore has twice or three times the output that that you have for the same salary. Um, uh, or has your same output for half the salary.”
The human brain runs on approximately 20 watts of power, making it vastly more energy-efficient per calculation than current AI systems; this fundamental gap means AI will face persistent energy and cost constraints relative to human cognition for decades.
“the human brain runs on like 20 watts of power, like a third of an old school incandescent light bulb. Uh unbelievably efficient. Um, and so even though AI can I mean for a century we've had calculators that can do math better than us, right? But with much less processing power, now now we have AI. We've kind of kind of gone up the full stack. It's still very costly per mental calculation”
The least messy historical path to resolving sovereign insolvency is the post-WWII model: currency debasement paired with austerity, rebalancing spending toward productive investment (GI Bill, infrastructure), and then growing out of the debt through productivity.
“the kind of the least messy way to do it was kind of what they did after World War II. I mean during World War II they printed all this money but then they they pivoted hard. They they had more austerity afterward. So there was a massive devaluation but then they had built all these factories. They money printing tried to go more toward the bottom and middle. So like soldiers returning from war it's like okay here's your mortgage support...the GI bill and all this stuff. Exactly. And then here and then outside of that it's like pretty significant austerity.”
The most important single factor for long-term wealth building is getting exposure to productive equities and cash flow-generating assets rather than trying to time macro cycles; timing markets is difficult but being positioned for productivity is more reliable.
“And over the long term, that's kind of the more dominant side. Um, and kind of thinking in those terms, I I think is at least kind of the the baseline starting point to to do damage control uh and to see what the opportunities are.”
A more sustainable approach than current tariffs would involve taxing foreign investment flows into US financial assets (a tax on outbound interest and dividends) as the cost of accessing US capital markets, combined with tax offsets to maintain revenue neutrality.
“one of the tools actually was kind of how can we discourage so much investment coming in here. Uh and one of the mechanisms you can place like a it's a type of tax um which is to say oh you want to own some of our bonds well we're going to tax you know maybe 50 basis points of the interest that flows out to you and we're going to keep that as kind of like the the cost of running this ledge uh to access our bond market.”
Large language models and AI agents will continue to have fundamental limitations in context-tracking and reasoning (e.g., failing obvious logical tasks like the car wash example) unless the underlying architecture changes fundamentally; improvements will plateau on some capabilities.
“Uh I think that the until they fundamentally do things differently that problem will persist. Now you could shrink it over time.”
Healthcare expenses are an outsized portion of the US federal budget, driven by poor food systems and metabolic disease; the US spends far more on healthcare than Japan despite Japan having an older, healthier population, suggesting the problem is lifestyle and policy-driven, not age-related.
“you look at Japan for example, they have much slower health care costs even though they're on average 10 years older and they live longer, right? So we we have a very specific problem here in the US with our healthare costs and a big chunk of it is our food patterns.”
Energy is the single most important factor determining a developed country's economic success; energy bottlenecks are a more fundamental constraint than monetary policy or tariffs.
“I think the the biggest factor overall the single biggest factor is energy. Uh so I think from a from a governance standpoint the number one thing a developed country can do is don't don't get energy bottlenecks.”
A value rotation away from mega-cap tech toward profitable, dividend-paying, lower-capex companies is underway and will persist; companies that are 'AI-resilient' (using AI to cut costs) and cash-flow positive are better positioned than growth-at-any-cost models.
“I have been in the camp that I I do think we're undergoing a a more of a value rotation. Now, it's not just value across the board. It's it's like value that's not value traps, right? So, like actually kind of, you know, roll your sleeves up and try to figure out what what is a future proof company that's cheap, cash flow, uh, positive, uh, AI resilient, uh, can use AI and its backend to cut costs”
Despite multiple political attempts, the US will not materially and persistently reduce the fiscal deficit, meaning large deficits will continue as a structural feature of the system.
“One is basically the argument that they uh despite multiple attempts they will not like materially and persistently reduce the fiscal deficit. So that's one side of it.”
AI provides massive productivity gains for white-collar work, comparable to manufacturing automation of the 80s-90s combined with offshoring, but the rewards will be so lopsided that it won't materially reduce polarization or the fundamental fiscal problem.
“I think it's a factor, but I think it doesn't really change the fundamental nature of it because the rewards are going to be so lopsided that you still have that polarization to contend with.”
The most likely outcome is a long process of system continuation punctuated by many mini-crises that are managed reactively; major systemic reforms are unlikely, and instead policymakers will layer chaotic, symptomatic policies on top of unsolved structural problems.
“I think we're going to have a very long process of this. basically nothing stops his train and it's punctuated by many crises. Um and so none of those are like the crises the the fabled you know end of the system and then like the birth of next system but always like little mini crises. Uh and they will keep popping up and get put out and another one will pop up and get put out and just delayed and pop up again and put out.”
The administration's tariff policies address a real and important problem (trade imbalances) that was previously neglected, but the execution is flawed and unlikely to be effective.
“I'm on record and I continue to hold a view that uh it was right for the administration to start prioritizing that...it was correct for them to finally say this is actually a really big topic uh now...but I I think that the mix of policies they've done doesn't really address the core issue.”
Foreigners owning an increasing share of US financial assets is unsustainable and will eventually reach a point where domestic asset owners and the broader public demand change; the current K-shaped economy will reach a tipping point before foreigners own everything.
“the problem is is you've got two potential expiration dates on that. Um one is which is where you've basically sold off an unreasonable amount of your for your your domestic assets to foreigners, right?...but but presumably you just keep increasing their share. At some point they own everything, right? Um but along the way, I think probably before that, the the domestic asset owners start benefiting so much more uh at the expense of everybody else. And this is the K-shaped economy, right?...at some point you probably before the foreigners own everything you get to a point where the the bottom leg of the K just says we got to do something totally different”
Current US electrical generation capacity is flat while China's is nearly vertical; this gap represents a massive structural deficit in US industrial capacity that cannot be rapidly closed due to time, cost, and supply chain constraints.
“you've probably seen that same chart I have of comparing the US and Europe's electrical production to China and China's we're pretty much flat and they're almost vertical and they're already like three times as much as we”
AI improvements are rapid in some domains (short-form generation, tasks that can be done in minutes vs hours) but have hit natural ceilings in other domains (art generation, long-form video); the rate of improvement is not uniform across domains, with some areas improving rapidly and others stalling.
“there's this there's tests that show you know h like how many hours like a task that takes how many hours could be done in a couple minutes with AI and that has increased exponentially over time. So and like you know like another way to put it is if you ask AI to write a short story about XYZ it could do a half decent attempt at it. If you ask AI to write a 300page book, it's going to it's going to be pretty bad because it has trouble keeping in its in its like consistent characterization, consistent intricate plot over that long.”
Money supply growth historically averages about 7% per year in developed countries, while productivity growth averages about 4% per year, yielding net price inflation of roughly 3% after offsetting productivity gains.
“so if if on average you know the 7% money growth but we get 4% better every year at making the average thing quote unquote uh then the net price inflation is something like 3%. Although of course it's very uneven.”
Skilled blue-collar work (HVAC, plumbing, electrical) will be slower to automate than white-collar work because human physical dexterity, context-sensitivity, and edge case handling provide a longer moat; unskilled iterative blue-collar work is already automated.
“skilled bluecollar is I think one of the slower things to get disrupted because to your earlier question I didn't answer I think robotics takes a lot longer because we just talked about how uh energy efficient the human brain is right the human body is also this self mostly self-healing robot with a a supercomput that runs on 20 watts...Um I think skilled bluecollar work has a pretty big buffer to it.”
The system will not blow up or spiral into disaster anytime soon; the wheels will stay on the track for an investable time horizon of 3, 5, 7, or 10 years.
“The other side is kind of the the the other which to say it's also not going to blow up anytime soon, right? So it's not like it's going to spiral into disaster anytime soon. Uh basically that the wheels are going to stay on the track.”
Japanese trading company conglomerates (which own diversified assets including commodities, logistics, manufacturing, and retail) have been undervalued for years and are outperforming as the value rotation takes hold; Warren Buffett's long position in these companies was prescient.
“one of the trades it's run for a long time is is and Warren Buffett was on top of this which was buying the they call them the Japanese trading companies, but they're not really trading companies. They're more like these like conglomerates that own anything rally like a company will own like a uranium deposit and a bunch of like convenience stores, right?...they were trading like six years ago super cheap. Um and they're these cash flow behemoths and they've just tremendously outperformed.”
The US should gradually reduce global reserve currency status and military footprint, transitioning to a more multipolar system with reduced dollar overvaluation, accepting some currency devaluation and inflation in exchange for rebalanced trade and a healthier manufacturing sector.
“we want to rebalance trade. That means giving up some percentage of the global reserve status we have. Um, and doesn't mean giving up all of it. Doesn't mean another currency gets bigger and takes it. It means you have a more multi-polar world...And so my policy if I was somehow somehow in charge of this would be to kind of it'd be like an elegant resizing, which is to say maybe we don't need 800 military foreign military bases. you know, maybe we don't need to be involved in every global conflict. Uh maybe we can focus on our own backyard.”
SaaS companies trading at 50x earnings are overvalued and likely to experience multiple compression even if AI doesn't displace them, since AI creates competitive pressure that will drive pricing down and enable customers to build alternatives cheaper.
“There were there were SAS companies trading at 50 times earnings and even if AI is overblown and those things don't go away tomorrow like they're like lately they're being priced for...Yeah. if they just go down from 50 times earnings to you know 15 times earnings”
Commodity producers and companies in the commodity supply chain (mining, energy, transporters) benefit directly from hyperscaler capex, as AI data centers and grid buildout require massive amounts of raw materials and energy infrastructure.
“I've been long precious metals. Um, I've been long kind of diversified commodity producers. I've been long energy producers or transporters.”
Skills required to use AI effectively include: security hardening (preventing AI agents from having excessive permissions that could delete files or emails), prompt engineering and context seeding (asking the right questions and providing relevant documents), and developing judgment to spot when AI is confidently producing wrong answers—all of which require hands-on practice and experience, not just theoretical understanding.
“there's still a lot of details around one making sure that it's secure right so it doesn't just like go and ask you say to do something it just deletes all your emails or deletes all your files or something so how do you manage giving it access to all your important stuff and not giving it kind of critical vulnerability access. Uh two, knowing how to ask the right questions or or knowing how to seed an agent with the right documents or source material to do things properly. Uh three, to know its limitations enough to spot when it's messing up because it'll usually confidently do wrong things, right?”
Fiscal dominance—where sovereign spending becomes the primary driver of growth and inflation, overwhelming monetary policy—is now the reality in the US and many other countries.
“the US, as well as many other countries, is now in an era of fiscal dominance. That's when fiscal spending gets out of control like a runaway train. It becomes so large that it becomes the primary determinant of economic growth and inflation, steamrolling over any impact of monetary policy or private sector lending.”
A three-pillar diversified portfolio—profitable equities, cash equivalents, and hard assets (sound money and commodities)—provides protection across multiple macro scenarios: disinflation, inflation, and productivity growth.
“I've generally been using what I call a three-pillar portfolio. So, one pillar is just profitable equities, pretty diverse, um, you know, paying attention to general valuation trends and and rapid disruption. Uh another one is cash equivalents uh for you know major selloffs to have dry powder to rebalance and then the third one is is hard assets.”
A president attempting to implement necessary painful reforms (austerity, reducing entitlements, rebalancing currency) would become known as the worst president of the era due to unpopularity, even if later history judges them successful; this political impossibility is why reform won't happen proactively.
“anyone who does it, that's the thing. They they become kind of wor known as like the worst president of the era because like they'll be so unpopular, right? Maybe in the future people like say that that kind of worked, but then the problem is when you do it, you'll probably get riots, you'll probably get this.”
The choice between an 'emergency landing' (proactive managed rebalancing) and a 'crash' (crisis-driven disorder) is available now but narrows over time; the longer rebalancing is delayed, the more disorderly the eventual adjustment will be.
“If you act before there's a crisis there's potential ways to kind of land the plane. It's like an emergency landing like you you land you survive. It's bumpy. Uh it's rough but you you land. And the other method is kind of remains intact. Yeah. Yeah. And the other method is you kind of just keep ignoring the problem and then you you crash”
The crises that will punctuate the 'nothing stops this train' trajectory are expected to be particularly acute in the 2030s due to the maturation of Social Security insolvency issues and other structural fiscal problems that have been deferred through debt issuance.
“Potentially some really big ones in the 2030s with like social security and things like that.”