Lyn Alden on the Dollar's Triffin Trap and What Replaces It Transcript — TFTC Article: https://www.tftc.io/china-trade-deal-dollar-dilemma-lyn-alden Transcript page: https://www.tftc.io/china-trade-deal-dollar-dilemma-lyn-alden-transcript Published: 2026-08-05 Machine transcription, lightly cleaned; may contain errors. ======================================================================== [0:01] Lyn Alden: Got the, got the headphone hair. I'm all out of Whack-Lyn. It's been a long week here in Austin. Yeah. Yeah, I can imagine. It's been a long time since we've talked on the show. been two years I was checking, which is astonishing to me. But no better time than now. I think quite literally, based off of all the conversations we've had over the years, I mean, you're famous saying nothing stops this train. think we're coming to a juncture where that's becoming abundantly clear. And you wrote a newsletter earlier this week, I believe you said it out Sunday. Yeah, too long. Too long. that basically highlighted the crux of the problem, which is the dollar reserve status and the almost impossible task that Trump would like to accomplish, but likely isn't the case, which is sort of solving Triffin's dilemma of reshoring manufacturing while keeping U.S. dollar dominance. So I think diving into this from first principles would be great. [1:05] Lyn Alden: Sure, yeah, and that's the, I can imagine the administration's challenge of trying to communicate this because the intricacies of how trade deficits and the reserve currency kind of pair together is very wonkish. It kind of has this like academic quality to it that doesn't go over well in kind of political oriented speeches. Like I would be terrible at a political rally, for example, when I try to explain any of this. And so we kind of have this situation where, And this was outlined back during the Bretton Woods system by Triffin, as you mentioned, which is that having the reserve currency does come with a bunch of benefits. [3:21] Lyn Alden: And when you step back and say, well, how do they get all those dollars? If they're all using dollars, how did all those dollars get out there? And the answer is trade deficits. Basically, that overvalued aspect forces open the US trade deficit. And every year we send out hundreds of billions or sometimes a trillion dollars in net outflows. And over years and decades, these have accumulated out there. And so, kind of the way it works is that if you want to fix the trade deficit, which I've writing about since 2019, I think that's a valid mandate to do. Unfortunately, it does come with trade-offs. Some of the benefits that we enjoy at the cost of the trade deficit, if you do want to kind of fix that imbalance, it comes up with basically giving away at least some of those benefits and prioritizing that industrial base a bit more. [4:15] Lyn Alden: And one of the dynamics that you highlighted in your newsletter, which makes sense, but wasn't very clear to me before, that via these deficits, we flood international markets with dollars because we're sending parts of our industrial base over there. But then it's like cyclical. They take those dollars and then reinvest them in U.S. assets. So it has this sort of flow where it goes out, but then it comes back in. into the financialized economy via equities and real estate and other such assets. And that is good for asset owners here in the United States. again, I think that's part of the magna mandate is that sort of cycle has led to this large wealth gap in the United States that they're trying to fix. [5:01] Lyn Alden: Yeah, exactly. And so basically the opposite side of a current account deficit, which is basically the trade deficit plus things like interest and dividends. So we run a structural current account deficit and the opposite side of that is a capital account surplus, which is that funds flow in the rest of the world and buy our financial assets. so the trade deficit is often described as us sending out pieces of paper and getting goods and services, which sounds like a really good deal. But then the extra step of that that you mentioned is that they take those slips of paper or really those electronic digits that they have and then they buy our stocks, they buy our real estate, they buy our private equity, they buy our corporate bonds and government bonds. [7:19] Lyn Alden: But I think the way I look at it is that because it's decades in the making, the best that any kind of one term can do is try to start changing the direction of it. But it's inherently kind of a multi-year, potentially multi-decade project to kind of fully reverse these really long-term trends. And doing it on extremely fragile ground, because as you point out, amount of debt that exists, both domestically and offshore for the U.S., it's a leverage ratio of 20 to one. So I think we have 5.8 trillion in base money and over, let's say 120 trillion in debt held domestically and offshore entities holding U.S. debt. [8:10] Lyn Alden: Yeah, that doesn't even include derivatives. That's just loans and bonds, basically. That doesn't include derivatives because derivatives are more opaque, more ephemeral. the BIS has kind of like Bank for International Settlements has kind of tried to map out the estimated size of that, but it varies. So even the conservative measure is 20 to one. Realistically, it's higher. And part of that, so all of that debt creates demand for dollars. All that is like inflexible demand. You if you've got a mortgage on your house, denominated in dollars, you have a demand for dollars, whether or you like the dollar or not. And that applies to the whole world and multiple domestic entities. [10:25] Lyn Alden: everybody can feel like they're losing, then the question is, is it going to be well executed? Is that trend going to start going in the other direction and kind of shifting some of those imbalances? Or is it going to be a lot harder than it seems? That it looks like it's going to be a lot harder than it seems to me, because he's thinking about Trump coming and what he's been trying to do over the last three months. We'd to get your opinions on this tariff policy, but I think just generally taking everything we've already discussed in the consideration. The fact that sending dollars out into the world, doing that by sending an industry to other parts of the world, they're flowing it back. [11:46] Lyn Alden: So I think I would separate into three things. One is kind of the mandate, two would be the plan and three would be the execution. And I think the issues that they start off good and then they kind of deteriorate as you go through those three steps. I think the mandate is there. So there are some people in politics that would disagree that the mandate's even there. They say we shouldn't be going after the trade deficits or they're not a big deal. I disagree with that. I do think that, and I've been writing about this for years, that the imbalances have become big enough that they're actually starting to really matter financially, politically. [14:06] Lyn Alden: you know, this kind of multiple mile tariffs on that are somewhat disruptive, that they could do some sort of currency accord, a series of trade deals that are in the United States favor that could then bring down some of those tariffs and start to maybe balance out trade somewhat. Then he faces the issue of, okay, well, what's next? What's after that? Because there's still the issue that if you want the dollar to be the global reserve currency, you have to supply the world with dollars. And so he focuses on, well, one, you could give up some of the reserve currency status. So it's not a Boolean thing. [16:30] Lyn Alden: That's kind of how it would go. So that's the plan. And then we look at the execution, that's where I think it got messier because, you know, they ramped up tariffs super high, super quickly that in many cases were so high that they hurt us as much as some of our trade adversaries. And even, you know, it takes years to reshore and build a manufacturing base. So if you throw on really high tariffs right away, we pay the consequences right away, but we don't really get the benefits anytime soon. And so other countries like China can just say, well, we'll just wait then because, you know, your terrorists are hurting yourself as much as you're hurting us. [17:53] Lyn Alden: Yeah, they sort of went Leroy Jenkins with the tariffs there. I think optically, just as an external observer, it seems like there was a faction within his administration that was in his ear saying, let's get aggressive with these tariffs, let's get aggressive. They did. pretty bad reaction from the markets and trade partners and businesses here in the United States across the board. And it seems that within the last month, month and a half that maybe Scott Bissette has sort of taken the reins and said, hey, let me be the forward facing voice of the administration and really try to be the quote unquote adult in the room and try to navigate this. [19:12] Lyn Alden: Yeah, one of their goals is to get the 10-year treasury down and during the peak market turmoil, of the issues is that, so as stocks were going down, which is normal given all sorts of basic, you know, tax increases and uncertainty, normally you'd see the dollar strengthen and the bond market go up, meaning yields go down. Capital basically get out of stocks, get into safer treasuries, it would get out of other currencies and get into the dollar temporarily. And even in Stephen Myron's paper, he talked about initially this would probably be dollar strengthening. And unfortunately, it kind of backfired. So instead, were net outflows, similar to what you see in emerging market, which is we saw stocks go down, bonds go down, meaning yields up, and the dollar go down altogether. [21:40] Lyn Alden: trade partners that there are sometimes frictions with, but that they're otherwise all in the same region. So even that attempt to kind of isolate China seems to not be going well, which is what we'd expect given the fact that China is the biggest trading partner with the majority of countries in the world. S. was the biggest trading partner with most countries in the world. outside of certain pockets of Asia, maybe 80 % of the global map was blue. And then over 20, 25 years, that map turned red and made out of China, which is that China gradually became the biggest trading partner in most countries in the world. [22:54] Lyn Alden: Yeah, like I mentioned before we have record up in at a conference last two days. So did not catch that a S E A N announcement. The fact that Japan and China together sort of saying, yeah, we're to do that's a bitch. That's surprising considering how much we've been leaning on Japan for many decades since the, since the eighties, after we, after we sable rattled at them. And I think China's obviously whether Trump wants to, it does seem like he is implicitly admitting it, but that seems like the big elephant in the room. Like when you, when you shared some charts in your newsletter, when you look at their energy production, steel production, manufacturing base, and the fact that while politicians and pundits may like to position that China needs the U S because we're the largest trading partner, it seems like that. [24:07] Lyn Alden: Yeah, the whole world's interconnected, but it's not as though the US is just the pure center of the whole system. There are lot of connections that go around us. And so, 20 years ago, China was kind of known for sneakers and plastic trinkets and things like that, but now they've kind of raised up the capital stack toward more complex goods. And so one of the things I point out is that literally in a four-year period, China became the largest auto exporter in the world. So for years, they had kind of pretty minimal auto exports. And then from 2020 to 2024, a lot of their pieces fell into place. [26:31] Lyn Alden: They have a bigger lock on the solar market than Saudi Arabia and all of OPEC has on the oil market, ironically. Then they have near dominance in rare earths. And then they have financial measures they can do by holding a lot of US assets. They're able to sell some of those assets if they want to and disrupt US treasury market functioning temporarily. And so there are kind of big moving parts here, both in terms of trade, in terms of financial interconnections. that are harder to unravel quickly. And it does give them a pretty substantial negotiating position. Now they have weaknesses too. mean, they don't want to lose like 10 % of their exports or to face margin pressure, especially given some of the other challenges that they've had. mean, they went through a really big real estate deleveraging, their demographics aren't great. They face a lot of challenges on their own. And so there are There is ammunition that both sides have, but it is kind of a protracted, complicated relationship. [27:38] Lyn Alden: As an American, I look at the, the Chinese energy generation charts and I'm a bit jealous. I think we need to bring that, that type of growth back to the energy sector here in the United States. And it seems like with Chris Wright at the head of the department of energy and, sort of the posturing of Trump leading up to and after the election inauguration is that that is going to be a focus moving forward. And I guess it's like, What are your thoughts on how that actually gets implemented and what it will take to catch up on that type of energy generation growth that I think is desperately necessary? [28:18] Lyn Alden: Yeah, that's a key aspect. As part of our stagnant industrial base, we've had stagnant electricity production in the US for decades, whereas China has ramped up to unfathomable degrees. They produce more than twice the electricity we do. Now, part of that's because they have a bigger population, but it's also a big chunk of it goes toward their manufacturing base. And then there's other ones that don't go directly to electricity. If you're in heavy steelmaking and things like that, you need these big thermal, you know, high powered energy production. I mean, China makes like 10 times more steel than the United States does. Something like that order of magnitude, which is relevant in ship making. [30:39] Lyn Alden: And so it just moves at a slower pace. And then ironically, some of the parts for like electricity transmission or distribution transformers, a lot of that is made in China. And so even to kind of start rebuilding our own power base, it's not like we can snap our fingers and make it here. We have to kind of build it again from the ground up. And so I think, yeah, getting energy right. is one of the key things. And we saw that when Europe fumbled their energy over the prior years and then they got kind of called out on it due to the war, that's economically impaired them. And we wouldn't want the US to be in a similar position. [31:17] Lyn Alden: It would not I think the pressure from Big Tech and AI it's funny because Bitcoin miners been fighting for this for years and beginning a lot of pushback, but as soon as Silicon Valley gets involved and say hey we need this for AI. It's like, okay, let's go drill baby drill. It seems like Nuclears definitely becoming more in favor. I think we had Oklo Get some of the red tape cut for their SMR projects. They're be doing some government some government applications, military bases, I believe, which is a good sign, but it is. perplexing, not perplexing, but just like, it does feel like there is a needle to be thread here. And I think the next, I'd love to get your thoughts on this. Like what is the window of time where we need to execute the threading of this needle? Is it six months? Is it a year? Do we have this whole four year administration or does something need to happen rather quickly in the near term? [32:19] Lyn Alden: think there's no cutoff, the earlier you go, the better. There's no benefit from waiting, only cost from waiting. And so anything that cuts red tape and can accelerate energy production here at home earlier is better. And even things we don't think about, for example, going back to my prior point, why does China dominate the solar market? It's ironically because of their other energy sources, which is to say, the process of turning silicon basically into solar panels is actually really energy intensive. And that's part of why we've, you know, the whole world's kind of pushed a lot of their dirtier businesses into China. So, you know, kind of put on their balance sheet. [34:40] Lyn Alden: It still needs kind of reliable low-cost energy in order to be competitive. Yeah, I mean, China's getting to the point, but I forget if it was BYD, the car maker, but they had that sort of drone view of the San Francisco sized factory. Like we're getting to the point, particularly with AI, if these humanoid robot form factors accelerate and the software and the firmware gets to a point where they can actually complete tasks like China. You could squint and see within the next decade they could have. a system where humans aren't needed to build anything, even the factories themselves. And you look at the state of the industrial base here in the United States, we're nowhere near that. [36:02] Lyn Alden: Yeah, I agree. I, you know, for like, I've used it for AI generated art for a couple of years now. And so it's really interesting kind of every month seeing the improvements that happen there. And then of course, for research as well, that's a big area that I use it for and just seeing it become a smarter and smarter assistant over time is very powerful. And there is a, there is a big gap between say data center AI and portable AI or, you know, robots and drones, which is everything gets harder when you have to make it portable. And so, I think humanoid robots at scale are probably farther out than the average person thinks, even though they'll be increasingly relevant. [38:20] Lyn Alden: It's insane. been, I've been, I find myself using it more and more every month. I've gotten to the point where if you're not using these tools to extend your knowledge, you're, you're going to get left behind, not left behind, but you're at a disadvantage to those who are using it because it is extremely powerful. But shifting this back toward this current administration and Absolutely. going to the Treasury Secretary. How do you think if at all they will incorporate Bitcoin like you said Steve Myron talking about the the demand for for gold and cryptocurrencies these neutral reserve assets should increase as we go through this transitionary period Obviously here in the United States This administration has come in and said we love crypto. [40:04] Lyn Alden: Well, yeah, think the first step is just not to be in the way. So it's basically to say that, you know, if people want to send money to exchanges or brokers to buy Bitcoin or their assets, you know, their banks shouldn't be told to like block them from doing so or de-banking them just because they work in that industry or are sending money to buy those assets. That's been a big trend for years now. So, yeah, I think just getting out of the way is step number one. I mean, I think a bigger benefit would be exempting Bitcoin from capital gains, at least on a small level to basically say when everyone gets like a write off every year of an equivalent of a several thousand dollars. [42:24] Lyn Alden: because we're the axiom of the system. We're the ones that didn't need reserves because other currencies are kind of managing themselves around the dollar rather than the dollar ever really managing itself around others. But if we do enter a more balanced world, then the US can have higher reserves too, 5-10 % of GDP in line with other developed nations. And that can include buying other countries' bonds, which is not very attractive. mean, do we want to own Euro denominated sovereign bonds and yen denominated sovereign bonds. I that was discussed in the paper and obviously that comes with inflation risks, outright default or repudiation risks. Gold is an obvious market because it's so big. [44:52] Lyn Alden: many countries. For the US, mean, if they want to, they can use it as a dollar devaluation tool. They can accumulate more Bitcoin. They've already kind of emphasized that they don't necessarily want to do that. If they're going to accumulate it, they want to do it on a revenue neutral basis, which is the more conservative approach. But yeah, I do think it makes sense for the US to hold Bitcoin, but I purposely focus less on covering it. There's more than enough voices in the space. covering every single move of strategic Bitcoin reserve and cheering them on. I like to focus on kind of more bottom up. [46:14] Lyn Alden: Yeah, I completely agree. think the Strategic Bitcoin Reserve is a nice to have, but I think... And what's going on now with all the corporations and launching their pure Bitcoin treasury plays? Interesting. Good development. Micro strategy has definitely proven the way. It's repeatable. We will see. But going a layer down, just entrepreneurs, individuals holding Bitcoin on their balance sheet and incorporating Bitcoin into their financial lives in any way that they can. I think it's... like you mentioned, that grassroots way is going to create a much stronger foundation in the long run. that's, I'm sure you've been following it, but I think that this development of Bitcoin and structured credit to help sort of recapitalize credit products in the commercial real estate and other markets is very interesting to me as a theme. [48:11] Lyn Alden: Yeah, and think, mean, one of the biggest trends overall is that there is mandated capital or walled garden capital, which is to there are really big pools of capital that have a specific purpose. It could be that they're a stock fund and they buy stocks and you're a manager that buys stocks. There's bond funds, there's credit funds, there's real estate funds. There's all these different types of entities that have kind of a specific mission. And if you happen to work in that industry and be a Bitcoiner. Like you're bullish on Bitcoin long term, structurally bullish, but you work in buying stocks, buying bonds, buying credit, buying real estate, then one of the cheat codes you can do is incorporate Bitcoin into what you're doing. [50:10] Lyn Alden: And this week was an incredible validation of that thought you just put forth, is we had here in Texas, we had in Austin, specifically we had the Texas Energy Mining Summit Tuesday, Wednesday, we had Bitcoin plus plus Wednesday yesterday. And I believe it's still going on today. At the same time, we had a group of Bitcoiners going to the Capitol to talk about the Texas Bitcoin Strategic Reserve. And they were pretty confident about that. And at the same time in Orlando, you have strategies. Bitcoin for corporations conference going on and I think that's just like emblematic of Everything you just said we have all these different events going on literally at the same week covering these different areas of the economy that Bitcoin Can can help alleviate some of the pains that exists in the those particular sections of the economy and I spent my time at Texas energy mining summit and Bitcoin plus plus here in the city and energy mining in a very good spot. [52:15] Lyn Alden: I agree and it's funny because I analyzed macro but I also am involved in Bitcoin venture via eGoedith Capital. And so I kind of have these windows into both sides of this, like kind of cool stuff that's being built, but also how it interacts with macro. it just seems like, especially outside of people that focus on this so much, most people just fall into one camp or the other. They're either technical or they're just talking about the financial decisions, whereas across the board it's just so interesting. And I don't really view them as in opposition at all. mean, there people that are like, you know, Bitcoin's been captured or Bitcoin is lost. [53:50] Lyn Alden: Yeah, that was the most I ran the live news desk at BTC++ Wednesday and yesterday and Matt Corallo, one of the most pessimistic people I've met in Bitcoin. was a core developer for a long time. He's been working on LDK for those who are unaware. was co-founder of Blockstream back in the day. He was optimistic yesterday and he actually, to your point about the bear versus bull market building, Like he, he was, he's pleasantly surprised at the amount of progress that the developers are making on second layer solutions, despite the price going up above a hundred thousand dollars. Usually the price goes up and people are like, we don't have to work to get too distracted. [55:05] Lyn Alden: That's good to hear. At the conference, would you the biggest takeaways are for L2s? I think lightning as this interconnective This connective tissue for these second layers is becoming clear and So for example like the development of cashew over the last year Specifically that that chalmium mint protocol and for those who are unaware Listening to this chalmium mints allow you to lock Bitcoin up you get a commensurate amount of ecash tokens back and when you spend those tokens whether it's in the mint or outside of the mint it's very private it uses a blinded signature scheme where the mint operator doesn't know what people are transacting but it comes privacy benefits fee benefits instant settlement benefits in terms of the speed but you can have these individual mints and what we're finding is that these mints can have lightning gateways the lightning network they can communicate not only with other mints but people simply using the Lightning Network, people using other second layer solutions like Liquid or Arc. [57:34] Lyn Alden: To people that are willing to stomach the variance risk of Bitcoin mining so you can create a liquid Market for your hash an immediate liquid market for your hash combining You cash and the lightning network, which is pretty cool so you can spread out the volatility of the payments. So it's not all just focused on the miner. Yeah, that's smart. I like that. Yes. Yes, and you can sell, you can basically pull forward revenue by selling to people who want to speculate on the luck of that individual pool. Yeah, it's happening, Lin, it's happening. Are you finding yourself having to pinch yourself? Because it seems like, it almost seems like, Star Fox 64, level two. It's quiet, too quiet, and then you get ambushed. It's like, it's too good, it's too good, we're about to get ambushed. [58:02] Lyn Alden: powerful. Bullish. great reference. I love that game. I played that a ton when I was a kid. I think it's a good position. think it's actually, I like seeing Bitcoiners pessimistic and arguing with each other because that's healthy. But I think when you zoom out, the network's in a great space. think the network has years of potential political cover. So at least less chance of attacks, including attacks against privacy, attacks against ownership, that kind of thing, least in the US. Europe's a kind of a different beast, but there are pockets around the world where it's politically pretty in decent place. And then the whole tech stack, that allows the tech stack to flourish pretty well. [59:56] Lyn Alden: I think that's a Bitcoin turned 16, people that have been in it for a while, they're sort of uncomfortable with how nice people are playing with Bitcoin and talking about it. They're like, wait a second, I you were supposed to hate this thing. And now everybody's like, well, actually it solves the problem we have. And I think a lot of people are trying to come to grips with the fact that like, I don't know, people are waking up to Bitcoin, it's actually happening. We've been talking about this for quite some time. I mean, it's funny, the people that push back against it, the game theory has been, not the game theory, the People have described the adoption, the order of operations of adoption over the course of the last 15 years. [1:01:03] Lyn Alden: Pretty much. mean, that's part of Bitcoin becoming a multi-trillion asset. That's what happens if it's successful. And then the cool thing about it is that it doesn't have to lose any of its traits that existed when it was smaller. It's still permissionless. The tech is more useful than years ago. There's more ways and easier ways to interact with Bitcoin than ever before. I harder wallets and NFC cards and things like that are better. Lighting network is easier to use, more liquid. ECash is great. There's all these different things that work together. on the individual level, it's great. And then as these bigger entities buy into it, over time, they can dampen the volatility somewhat. [1:02:54] Lyn Alden: Yeah. Bitcoin is catching on, you may want to get some. That's the part we're at. let's not take two years to catch up on the show next time. That's on me. But this was incredible. Thank you for the work that you're doing. Thank you for joining. hopefully we can do it again soon. Yeah. I agree. Always happy to catch up and I appreciate the work you do in this space. Peace and love freaks.