Editing Idea:Lyn Alden's Broken Money Thesis vs AI Deflationary Forces

{{Idea
|type=person/economist
|id=20250812-1153-lyn-alden-broken-money-ai-deflation
|created=2025-08-12T11:53:00Z
|source_type=book
|source_title=Broken Money: Why Our Financial System is Failing Us and How We Can Make it Better
|source_authors=Lyn Alden
|source_year=2023
|links=20250812-1150-technological-deflation-vs-fiscal-inflation, 20250812-1152-portfolio-construction-ai-inflation-crosscurrents
}}

= Lyn Alden on Fiscal Inflation Meeting AI Deflation =

== Economist Background ==
* '''Name''': Lyn Alden
* '''Period''': Contemporary (2020s)
* '''School of Thought''': Austrian-influenced, Fiscal Dominance Theory, Long-term Debt Cycle Analysis
* '''Key Contributions''': Framework for understanding monetary debasement, fiscal dominance over central banks, technology's role in monetary evolution

== Core Idea ==
Alden argues that excessive government debt and spending create persistent inflationary pressure through currency debasement, as governments are structurally unable to reduce deficits. This "broken money" system leads to inevitable inflation as debt is monetized. However, this thesis must now contend with AI creating massive deflationary forces simultaneously.

== Key Principles ==
# '''Fiscal Dominance''': Government spending needs override central bank independence
# '''Debt Spiral Dynamics''': High debt leads to more money printing, creating self-reinforcing inflation
# '''Currency Debasement''': Fiat currencies lose value against real assets over time
# '''Technology as Monetary Evolution''': New technologies (like Bitcoin) emerge as responses to broken money

== Assumptions ==
* Governments cannot meaningfully reduce spending due to political constraints
* Central banks will ultimately monetize government debt
* The current fiat system is unsustainable long-term
* Real assets maintain value better than currency during debasement
* Technology adoption follows predictable S-curves

== Predictions/Implications ==
'''Alden's Original View:'''
* Persistent inflation despite economic weakness
* Real assets outperform financial assets
* Currency debasement accelerates globally
* Alternative monetary systems gain adoption

'''With AI Deflation Overlay:'''
* Sectoral inflation divergence becomes extreme
* Governments may need to spend even more to combat deflation, validating her thesis
* The "crack-up boom" might manifest differently - asset bubbles with goods deflation
* Bitcoin/crypto adoption accelerates as traditional economics breaks down

== Historical Context ==
Alden's thesis emerged from studying:
* Weimar Germany's hyperinflation
* 1940s US financial repression
* 1970s stagflation
* Japan's deflation despite massive spending
* 2020s pandemic fiscal/monetary response

== Modern Relevance ==
'''How AI Changes Alden's Framework:'''
* AI deflation might force even more aggressive fiscal spending
* The debt trap becomes more severe if deflation increases real debt burdens
* Traditional inflation hedges might fail if AI disrupts faster than governments print
* The "broken money" problem accelerates as economic measurement becomes impossible

== Criticisms ==
* May underestimate technology's deflationary power
* Assumes political economy remains stable
* Doesn't fully account for AI's impact on productivity
* Linear thinking about exponential technological change
* US-centric view may not apply globally

== Supporting Evidence ==
* Government debt-to-GDP at historical highs globally
* Central banks consistently behind the curve on inflation
* Negative real rates becoming normalized
* Fiscal deficits structurally embedded
* Currency debasement visible in asset prices

== Contradicting Evidence ==
* Japan's experience: massive spending without inflation (until recently)
* Technology consistently creating deflation
* Globalization's deflationary effects
* Demographics (aging populations) creating deflationary pressure
* AI potentially overwhelming any fiscal response

== Related Ideas ==
[Technological deflation theory, portfolio construction under mixed forces, government debt sustainability question]

[[Category:Person/Economist]]
[[Category:Monetary Policy]]
[[Category:Fiscal Policy]]
[[Category:Inflation]]
[[Category:Deflation]]
[[Category:Currency Debasement]]
[[Category:Ai Disruption]]
[[Category:Monetary Policy]]
[[Category:Fiscal Policy]]
[[Category:Inflation Deflation]]
[[Category:Artificial Intelligence]]