The Dollar Milkshake Theory Explained and Challenged

November 8th, 2025

Over the last few years, the ‘Dollar Milkshake Theory’, a concept popularized by Brent Johnson of Santiago Capital, has gained a lot of attention from western investors. In simple terms, Johnson argues that as the world floods itself with easy money, the United States, because of its reserve currency status, will ‘drink’ that global liquidity through its financial markets. The U.S. has the ‘straw,’ he says, and everyone else just poured the milkshake.

The theory is elegant, and to an extent, it’s been proven right. During times of global stress, from 2008 to 2020, the U.S. dollar strengthened as investors rushed into American assets. Capital fled emerging markets and weaker currencies, and the dollar index climbed. It’s not hard to see why – the dollar remains the backbone of global trade, debt, and finance. When the system trembles, everyone scrambles for greenbacks.

But there’s another side to this story, one that the Austrian school of economics has long warned about. When the foundation of a financial system rests on artificially low interest rates and decades of credit expansion, what looks like stability is really a delicate balance of bubbles. And in today’s world, there are three big ones that could together destroy the entire global financial system i.e., real estate, stocks, and bonds.

The Fragile Foundations Beneath the Milkshake

The real estate bubble has been built on cheap credit and speculation. Property prices in the West have soared far beyond what incomes can sustain. The stock market bubble has been inflated by years of near-zero rates, corporate buybacks, and the belief that central banks will always step in to save the day. And then there’s the bond bubble, arguably the biggest of them all, where trillions of dollars are parked in government debt that pays yields lower than inflation.

According to the Dollar Milkshake Theory, when the next crisis hits, money will rush into U.S. assets, driving the dollar even higher. But what happens when all three of these bubbles start to burst at once? Where does the capital go when even ‘safe’ assets like Treasuries are overvalued, and inflation is eroding real returns?

That’s where the entire Dollar Milkshake Theory begins to fall apart.

When the Straw Breaks

In the next major downturn, the dollar may fail to strengthen even at the outset of the crisis, but even if it does initially rise, it certainly won’t last. Once the U.S. government responds with even more stimulus spending, more bailouts, and more debt monetization, the real value of the dollar will come under pressure. Inflation will rise, production costs will climb, and the ‘safe haven’ narrative about the USD will fade.

Instead of flowing into Treasuries, global capital may move into commodities and foreign assets. Resource-rich countries, real goods, and tangible stores of value could become the preferred destinations. Gold, silver, and perhaps even energy-backed assets would likely outperform. In other words, the milkshake gets spilt. The dollar doesn’t suck in global liquidity, it leaks it.

From Dollar Strength to Dollar Debasement

This is the Austrian view of how things unfold: a monetary policy of persistent credit expansion creates malinvestment, bubbles burst, and governments try to paper over the losses with even more money printing. The short-term effect may or may not be a stronger dollar, but the long-term result is stagflation and currency debasement.

The United States can’t sustain record deficits, a massive debt load, and rising interest costs forever. When confidence slips, the dollar’s dominance will weaken, not overnight, but gradually, as the rest of the world begins to diversify away from it. The next phase of the global cycle won’t be about dollar supremacy; it will be about the loss of trust in fiat money itself. In that scenario, we’ll likely be forced to adopt a sound money system backed by something real and that cannot be ‘printed’, like gold.

Brent sees things differently, he thinks that while the dollar is ultimately in big trouble, there will be a prolonged period of dollar strength before any return to fundamentals forces the dollar down. He has recently described a role for US stablecoins in delivering that prolongation, and to read about that (and my rebuttal) click the link:

• Brent Johnson - Stablecoins & the Mirage of U.S. Monetary Dominance

Only time will tell how this story plays out, but there seems little doubt that the western world is headed for a reckoning, and it’s not clear how it will emerge in anything like the dominant role that has enjoyed since the industrial revolution began almost 400 years ago – it’s that serious!

FAQs

Conclusion: The Real Lesson of the Dollar Milkshake Theory

The Dollar Milkshake Theory is valuable because it forces us to think globally about liquidity and capital flows. But it may only describe the first act of a much bigger story. The second act, the one we’re heading toward, could be the collapse of the very system that gave the dollar its strength in the first place.

When the bubbles burst, when real estate prices fall, when bond markets buckle under inflation, and when equities reprice to reality, the dollar won’t be the last man standing. It will be part of the fall.

Sources:

• Brent Johnson – Dollar Milkshake Theory Explained

Related Pages:

• Rethinking Brent Johnson
• Jeff Snider's Eurodollar Theory
• Russell Napier - Money Creation in Peace & War
• Opinion Column

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