Lyn Alden: Can Anything Stop The Runaway Train Of Fiscal Deficits?

Probably not, but it may slow this year...with implications for the markets

One of the biggest forces boosting both economic growth and asset price appreciation over recent years has been the explosion of higher fiscal deficit spending -- sending the prices of all assets including growth stocks, gold and Bitcoin soaring.

Today's guest, analyst Lyn Alden, predicts we'll be stuck with these these large deficits for a long time to come, often repeating in her writing that "nothing stops this train".

Why?

And if indeed so, what are the implications for investors?

And furthermore, with a new US presidential Administration publicly committed to reducing government spending, is the train truly unstoppable?

Maybe not. Or at least, maybe the train can be slowed this year — which Lyn thinks could have major implications for the financial markets.

For all the details, click here or on the video below:

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Adam’s Notes: Lyn Alden (recorded 2.4.25)

EXECUTIVE SUMMARY:

• Lyn emphasizes that fiscal deficits remain a dominant force in the economy, with the U.S. Treasury offsetting Federal Reserve tightening through liquidity injections. Despite a new administration's commitment to deficit reduction, Lyn believes that structural deficits are too entrenched to be meaningfully reduced. While short-term fiscal tightening efforts, including spending cuts and increased tariff revenues, may temporarily slow the deficit's expansion, long-term obligations such as Medicare, Social Security, and debt interest payments will continue to drive large deficits. These persistent deficits support asset price inflation, weaken the purchasing power of fiat currency, and contribute to liquidity in the financial system.

• Liquidity has been the primary factor behind strong market performance since 2023, contradicting widespread expectations of a recession. Despite the Federal Reserve maintaining high interest rates and conducting quantitative tightening (QT), fiscal spending, Treasury debt issuance, and the drawdown of the $2 trillion reverse repo facility have injected liquidity into the system. Lyn notes that this liquidity has kept asset prices rising and prevented a significant downturn. However, with the Reverse Repo Facility now nearly depleted and a new Treasury Secretary critical of short-term debt issuance, the liquidity tailwind may be coming to an end. The Federal Reserve might need to intervene with balance sheet expansion if liquidity conditions tighten too much.

• Lyn predicts a sharp increase in market volatility in 2025 due to shifting policy decisions, trade tensions, and upcoming debt refinancing. A "wall of debt" with $10 trillion in U.S. Treasury refinancing obligations will require significant issuance of new debt, likely at higher interest rates. This could strain financial markets, reducing liquidity and increasing borrowing costs. Additionally, Lyn highlights that political uncertainty, executive orders, and regulatory changes will add to market fluctuations. Investors should expect