(Kitco News) - The United States is entering a “debt spiral by design,” according to macro strategist Lyn Alden, who warns that rising deficits, interest costs, and protectionist trade policies are structurally embedding long-term fiscal instability into the global economy.

“There’s no will to rein it in,” Alden said in an interview with Kitco News. “It’s not an accident; this is how the system is designed.”

Alden, founder of Lyn Alden Investment Strategy, said U.S. federal deficits - now above 7% of GDP - combined with soaring interest expenses, are creating a feedback loop that could destabilize asset markets and investor confidence. “They’re not fixing this anytime soon,” she said. “It’s just how the machine works.”

Data from the U.S. Treasury shows net interest payments on federal debt have now surpassed defense spending and are on pace to exceed $1.2 trillion this fiscal year. Meanwhile, Congressional Budget Office projections confirm structural deficits will persist for the next decade, even under optimistic growth scenarios.

Tariffs and the Fiscal Feedback Loop

While fiscal dominance has been a long-building theme, Alden said tariffs are now acting as an accelerant.

“Tariffs are one of the most important things happening right now,” she said. “They are inflationary, and they can suppress real economic activity - so they reduce real GDP, they reduce real tax receipts, they raise prices. And when the government then prints to make up the shortfall, you’re in a feedback loop.”

President Trump has said he may raise tariffs on China and other trade partners by as much as 60%, while the Biden-era tariffs on strategic metals remain in place. Inflation data this week showed June CPI holding above 3% with services and goods categories remaining sticky, especially in shelter and transportation.

Alden warned that tariffs create “a way to pull inflation forward and pull stress forward, and that exacerbates fiscal dominance.”

Bitcoin as a Hedge Against the System

Alden said Bitcoin’s rise to over $120,000 this month is no coincidence. “The core thesis for Bitcoin is that this is a hedge against the system,” she said. “It’s not just cyclical. It’s structural. It’s a completely different base layer for capital allocation.”

She added that Bitcoin’s 83% correlation with global M2 (money supply) over the past decade makes it a reliable liquidity barometer. “Liquidity flows are what matter now, not central bank forward guidance,” she said.

Alden also said a growing number of investors are realizing that “you can’t hold cash, you can’t hold long-duration bonds, you’re being debased either way.”

Stablecoins and Stealth CBDCs

With the House debating the GENIUS Act and stablecoin legislation gaining momentum, Alden warned that the U.S. may be laying the groundwork for “stealth CBDCs” - government-controlled digital frameworks disguised as private innovation.

“There’s always a risk of a backdoor CBDC,” she said. “You regulate intermediaries so tightly - stablecoin issuers, payment networks, the fintech stack - that effectively you achieve the same level of control without ever issuing a CBDC.”

Tether’s latest attestation showed over $84 billion in U.S. Treasuries held on its balance sheet - making it one of the largest non-sovereign buyers of U.S. debt. “Stablecoins are absolutely propping up the Treasury market,” Alden said. “But the question is, at what cost to decentralization?”

The End of the Bond Bull Market

Alden reiterated her long-standing warning that bonds are in a secular decline. “In 2019, I said the bond bubble was unsustainable because math doesn’t lie,” she said. “Now we’re seeing it. The losses are permanent, and the risks are asymmetric. You’re not going to earn your way out of this.”Instead, she recommends investors consider a portfolio anchored in real assets - gold, Bitcoin, infrastructure - and shorter duration exposure. “Cash can work in the short term, but if you’re not rotating, you’re bleeding.”

Final Thought: This Is the Design

When asked what investors should take away from the current environment, Alden was blunt: “We are in fiscal dominance. The machine is built this way. The incentives are misaligned. And if you’re waiting for a return to normal, you’re going to be waiting a long time.” 

Watch the full interview with Lyn Alden embedded above for more on how Bitcoin, stablecoins, and hard assets fit into this shifting macroeconomic paradigm.