Today I’m extremely happy to be bringing you the latest from my friend Lyn Alden.
Lyn’s background bridges the fields of engineering and finance. She holds a bachelor’s degree in electrical engineering and a master’s degree in engineering management, specializing in engineering economics, systems engineering, and financial modeling. Her early career included roles as an electrical engineer and later an engineering lead at the Federal Aviation Administration’s William J. Hughes Technical Center.
Alden has been a passionate investor for years. From 2010 to 2015, she ran her first investing website as a part-time venture, eventually selling it to a larger publishing company. In late 2016, she founded Lyn Alden Investment Strategy, a research firm that grew significantly, leading her to leave engineering management in 2021 to focus on finance full-time.
Now an independent analyst, Alden aims to deliver institutional-level research in clear, accessible language for both professional and retail investors. She also serves as an independent director on the board of Swan.com and is a general partner at the venture capital firm Ego Death Capital. In 2023, she published the best-selling book Broken Money (congrats on more than 100,000 copies sold, Lyn!) exploring the history, present, and future of money through a technological lens.
Lyn is an investor I always read and always love to hear from, so I was grateful she gave me permission to share this month’s research with my subscribers. I’m sure you’ll find it as valuable as I do.
May 2025
This newsletter issue breaks down the recent trade breakdown (sorry for the pun) and explores some of the nuances of why realigning the global balance of trade is both popular and extremely difficult to do.
It also answers some common questions I get about trade deficits and the dollar’s global reserve currency status. Some of those questions and answers are wonky, but in my view they’re extremely important to understand in the current market environment, and for years to come.
This issue is supported by YCharts.
People that have read my work for a while know that I’ve used YCharts in my various reports for years; they’re some of my favorite tools for showing both stock-specific and macroeconomic data. They provide great resources for analysts, portfolio managers, and other investors. You can access a free trial here.
Trade Deficits 101
Trade deficits occur when a nation imports more goods and services than it exports.
When this occurs for brief periods of time, it’s fine. That happens frequently. There are all sorts of reasons why a nation might have a trade deficit or a trade surplus during a given period of time.
In some rarer cases, even long periods of trade deficits can be okay, as long as the flow of funds that makes up the trade deficit mainly goes towards productive build-out of the country. The key example of this is India, which has run trade deficits for decades. It’s one of the fastest-growing nations, has achieved tremendous economic growth over the past few decades, and overall the trade deficit is not mainly about overconsumption. In this case, the country’s GDP can greatly outgrow its trade deficit, which shrinks the trade deficit relative to GDP over time.
Where a trade deficit does become a problem is when 1) it’s persistent and 2) it’s mainly going toward overconsumption or malinvestment. When both of these conditions are met, the trade deficit is likely to result in significant imbalances, and risks an eventual currency crisis or other economic problem that forces the trade imbalance closed.
The United States has had decades of consecutive trade deficits, and indeed much of it is due to overconsumption. Being the global reserve currency gives it a very long (but not infinite) runway to work with, and by this point some of those consequences are starting to hit at scale.
How the Global Reserve Currency Impacts Trade
When people talk about trade surpluses or deficits, they often focus on policy-level details. Some countries engage in more protectionist strategies, where they try to tariff imports while exporting a lot, and this opens them up to criticism or retaliation from trading partners.
However, underneath all of that is a far more important foundational level that relates to the very nature of money itself.
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Author: Quoth the Raven
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