Financial analyst Lyn Alden discussed the potential consequences and benefits of Bitcoin in the face of the Federal Reserve’s aggressive stance.
Alden believes that if the Fed continues to be hawkish, it could result in instability in the banking system and ultimately lead to the seizing up of credit formation.
Alden pointed out that the Fed’s intervention during the 2020 COVID-19 crash and the 2019 repo spike were due to liquidity issues in the securities market.
The more hawkish the Fed becomes, the more they will have to intervene with liquidity to keep security markets functioning.
Inflation is another concern, as the Fed’s models may be outdated and not properly addressing current sources of inflation, such as large fiscal deficits or changing globalization patterns.
In this context, Bitcoin could potentially benefit from increased demand as an alternative store of value.
The current situation is reminiscent of the 1940s and 1950s, with high debt levels relative to GDP and attempts to escape the zero-bound interest rate environment.
Over the past 40 years, rising debt levels were offset by declining interest rates, which enabled servicing higher debt without increasing payments.
Now, as the financial system faces new challenges, Alden suggests that it is essential to reevaluate the models used by the Fed to better adapt to the changing economic landscape.
Listen to Lyn Alden’s exact words in the video below:
