Dollar Milkshake Theory: Will the US Dollar Suck the World Dry?Imagine a colossal milkshake party where every country brings its own flavor—sweet euros, tangy yen, spicy rupees—blended into a global liquidity shake. Now picture the United States, armed with a giant straw, slurping up every last drop while the rest of the world watches in dismay. 🍓🍫🍦 This vivid analogy isn’t just a quirky dessert dream—it’s the heart of Brent Johnson’s Dollar Milkshake Theory, a provocative economic idea that’s been shaking up financial circles since 2018. But is the US dollar really about to dominate the global economy, or will it choke on its own straw? Let’s dive into this creamy concoction of macroeconomics, recent trends, and global stakes—complete with a cherry of skepticism on top! 🍒
🥛 What’s the Dollar Milkshake Theory, Anyway?
Brent Johnson, CEO of Santiago Capital, isn’t just a wealth manager—he’s a financial storyteller who’s been stirring the pot with his Dollar Milkshake Theory. Picture this: the global economy is a giant milkshake, with frothy assets (stocks, bonds, commodities) floating on top, and the milk, cream, and sugar representing the cash flows between markets. The straw? That’s the US Federal Reserve’s monetary policy, sucking up liquidity when it tightens, leaving other economies parched.
Johnson’s core idea is simple yet bold: during global economic turmoil, the US dollar—thanks to its status as the world’s reserve currency—becomes a safe haven. Investors worldwide flock to it, driving its value skyward while other currencies wither. 🌎💰 Since 2008, global central banks have pumped roughly $30 trillion in liquidity into the system through quantitative easing (QE), creating a massive “milkshake” of money. But when the Fed raises rates, as it has in recent years, the US siphons that liquidity, leaving other nations scrambling to pay dollar-denominated debts.
Here’s the kicker: this isn’t a one-time sip. Johnson predicts a feedback loop where the dollar’s strength forces other countries to print more of their own currencies to buy dollars, further weakening their economies and reinforcing the dollar’s dominance. It’s a vicious cycle—a “milkshake” that could leave the global economy in a sticky mess. 🌀
📈 The Recipe for Dollar Dominance: Why the US Holds the Straw
Why does the US get to drink everyone else’s milkshake? It’s all about structural advantages baked into the global financial system:
Reserve Currency Status 💵: The US dollar has been the world’s reserve currency since the 1944 Bretton Woods Agreement. As of 2022, it accounted for 58% of global foreign exchange reserves, dwarfing the euro’s 20% share . From oil to copper, most global trade is priced in dollars, creating constant demand.
Deep Capital Markets 🏦: The US has the deepest and most liquid bond markets, especially for Treasuries, making it the go-to place for investors seeking safety during crises.
Higher Interest Rates 📊: When the Fed raises rates, as it did aggressively in 2022-2023 to combat inflation, the dollar becomes more attractive compared to currencies like the euro or yen, where central banks like the ECB and BOJ have been slower to tighten .
Global Dependence on Dollars 🌐: Over 60% of international reserves are in dollars, and many countries and corporations hold dollar-denominated debt. When the dollar strengthens, their debt burden skyrockets, forcing them to buy more dollars to service it .
Johnson argues this isn’t just a cyclical trend—it’s a structural feature of the modern financial system. As he put it on Real Vision in 2018, “The dollar’s dominance is structural, not cyclical”. The US doesn’t just sip the milkshake—it guzzles it, leaving others to scrape the bottom of the glass. 🥤
📅 2025 Reality Check: Is the Milkshake Theory Playing Out?
Fast forward to April 2025, and the global economy is a blender of chaos: trade tensions, high debt levels, and monetary policy shifts are whipping up a storm. Does Johnson’s theory hold water—or rather, milk? Let’s look at the evidence. 🕵️♂️
🟢 The Bull Case: The Dollar’s Straw Is Sucking Hard
DXY Strength in 2024-2025: The US dollar index (DXY) surged 7% in 2024, hitting a two-year high of 108.07 in November 2024, driven by US economic growth, tariffs, and global uncertainty . Despite a recent 8% drop over the last two months (from ~106.8 in mid-February 2025 to 98.423 as of April 22, 2025), the DXY remains near historic highs, aligning with Johnson’s prediction of dollar strength during stress.
Historical Precedents: During the 2020 COVID crisis, the DXY jumped as the Fed provided $450 billion in swap lines to ease dollar shortages globally, reinforcing the dollar’s safe-haven role. In 2022, Russia’s invasion of Ukraine pushed the DXY to a 20-year high of 114, as capital fled to the US amid Europe’s energy crisis.
Global Liquidity Squeeze: High-debt economies like Japan (debt-to-GDP at 255%) and the Eurozone (Italy at 139%, France at 112%) are under pressure. Capital flight to the US, especially if their growth falters, supports the milkshake effect.
Safe-Haven Demand: Posts on X reflect sentiment that the dollar’s strength is tied to its stability in an unstable world, with some users noting its “dug-in” status as global liquidity flows to the US .
🔴 The Bear Case: Is the Straw Starting to Bend?
Recent DXY Drop: The 8% decline in the DXY over the last two months (mid-February to April 2025) signals vulnerability. Trade war fears, threats to Fed independence, and a weakening US trade balance are weighing on the dollar. Some X users predict a further drop to 96-97, or even 87, if support levels break.
Fed Policy Shifts: The Fed began cutting rates in September 2024, which typically weakens the dollar by reducing its yield advantage. This move, aimed at balancing inflation and growth, could undermine the milkshake effect if it continues.
Dedollarization Efforts: BRICS nations are pushing to reduce dollar reliance, with China and India holding significant non-dollar reserves ($3,682 billion and $662 billion, respectively, as of April 2025). A shift toward commodity-based currencies could challenge the dollar long-term.
US Debt Concerns: The US’s soaring debt levels (over 120% of GDP in 2024) and inflation above the Fed’s 2% target raise questions about the dollar’s sustainability. If confidence in US fiscal health wanes, the milkshake could spill.
🌪️ What Happens If the Milkshake Theory Plays Out?
If Johnson is right, the global economy could face a bitter aftertaste. Here’s what a super-strong dollar might mean:
Currency Crises Abroad 💥: Countries with dollar-denominated debt—like many emerging markets—would struggle as their debt burdens soar. A stronger dollar means they need more of their own currency to buy dollars, potentially triggering defaults.
Commodity Price Slumps 📉: A rising dollar often leads to lower commodity prices (priced in dollars), hurting exporters like Brazil or Australia. This could stifle growth in developing economies.
US Export Woes 🚢: An overly strong dollar makes US goods pricier abroad, hurting American exporters. US companies could lose competitiveness, impacting economic growth.
Safe-Haven Asset Boom 🪙: Investors might flock to alternatives like gold or Bitcoin to hedge against currency devaluation. Gold recently hit $3,400 amid the DXY’s slide, and Bitcoin has seen gains as a “risk-on” asset.
Geopolitical Shifts 🌍: A dominant dollar could lead more countries to peg their currencies to the USD for stability, as 65 nations already do (e.g., Hong Kong, Saudi Arabia). But it might also accelerate dedollarization efforts, with BRICS nations seeking alternatives.
🤔 Skeptics Stir the Pot : Is the Milkshake Theory Too Sweet to Be True?
Not everyone’s sipping Johnson’s milkshake. Critics argue it’s more of a financial fairy tale than a robust theory:
Oversimplification 📊: The global economy is far more complex than a milkshake analogy. The theory focuses heavily on Fed policy but downplays other central banks’ actions, geopolitical tensions, and the rise of digital currencies.
Lack of Timeframes ⏳: Johnson’s predictions lack clear timelines, making them hard to test. As some X users have pointed out, being “too early” in financial markets is as good as being wrong.
Counter-Theories 🌐: Economist Zoltan Pozsar’s Bretton Woods III Theory suggests a shift toward commodity-based currencies in the East, potentially weakening the dollar. Post-Russia-Ukraine war, nations are diversifying away from the USD, favoring hard assets like gold.
US Vulnerabilities 🇺🇸 : The US’s own fiscal health—high debt, persistent inflation, and trade deficits—could undermine the dollar. Recent tariffs and supply chain shifts (e.g., moving away from China) may raise production costs, fueling inflation and slowing growth.
💡 What’s Next for the Dollar Milkshake in 2025 and Beyond?
As of April 22, 2025, the DXY’s recent 8% drop is a speed bump, not a derailment, for the Milkshake Theory. The long-term chart you provided projects the DXY climbing to 120-130 by the late 2020s, suggesting this dip might be a correction within a broader uptrend. But the road ahead is frothy with uncertainty:
Watch the Fed 🏛️: If the Fed continues rate cuts, the dollar’s yield advantage could shrink, slowing the milkshake effect. Conversely, renewed tightening could reignite dollar strength.
Global Crises ⚡: Ongoing trade wars, like US-China tensions, or new geopolitical shocks could drive more capital to the US, reinforcing the theory.
Dedollarization Risks 🌏: If BRICS nations succeed in reducing dollar reliance, the US straw might not suck as hard in the future.
🥛 Sip or Spill: Should You Buy Into the Milkshake Theory?
Brent Johnson’s Dollar Milkshake Theory is a compelling narrative that captures the US dollar’s unique power in a turbulent world. The evidence—DXY strength, historical crises, and global dollar demand—suggests there’s cream in this shake. But the theory isn’t without cracks: the US’s own vulnerabilities, dedollarization efforts, and the recent DXY dip remind us that even the mightiest straw can bend. 🥤
For investors, this means staying nimble. A stronger dollar could hurt emerging markets and commodities, but it might boost safe-haven assets like gold or Bitcoin. Keep an eye on Fed policy, global growth, and geopolitical shifts—they’ll determine whether the US keeps sipping or the milkshake spills. 🌍💸 What do you think—will the dollar dominate, or is the party over? Let’s hear your thoughts! 🗣️
Milkshake
US CPI week for the DXY It has been a topsy turvy week for the dollar after the week opened with news of 25% tariffs on Mexico and Canada from the US as well as a 10% import duty on Chinese goods. The DXY spiked to a high of 109.9 before closing the week marginally lower at 108.1. The weaker than expected US NFP print however and surprisingly provided support for the DXY. This week’s price action is indicative that the ABC corrective wave has run its course and that another leg higher towards 112 is on the cards for the DXY.
The critical support range is the blue range between 107.2 and 107.5. As long as the DXY remains above this range and maintain levels above the 50-day MA at 107.8 there is nothing stopping the DXY from moving higher as the dollar milkshake theory continues to suck the DXY higher.
A break below 107.2 will however invalidate the idea and allow the DXY to drop onto the 200-day MA level of 104.8.
It is CPI week for the DXY and a stronger than expected CPI print will allow the DXY to regain its momentum and commence the start of another leg higher for the index. The US CPI print for January, which is expected to remain unchanged at 2.9%, just like it did back for the December print. Inflation has been ticking higher since October last year, almost right after the Fed started their cutting cycle and anything other than an inline or lower than expected CPI print will have the DXY packing and making its way to 110 and 112 thereafter since it will indicate that the Fed will stay higher for longer.
Euro's probable fall to parityThe greenback looks set to add to its gains against the euro after yesterday’s sticky US CPI print. Positive employment data from the euro zone and in line with expectations Q4 GDP prints yesterday also did little to spark confidence in the euro.
The euro managed to push the pair above the 61.8% Fibo retracement level, 1.096, from the downward wave following the start of the Fed’s hiking cycle. The dollar has since managed to find its footing which has seen the pair fall back onto this critical level. This rate at 1.096 also coincides satisfyingly with the 50-day MA rate currently at 1.0719. I expect this support level to give way which will allow the dollar to pull the pair onto the zone between the blue 38.2% Fibo retracement rate of 1.044 and the green 50% Fibo retracement rate of 1.046. A break below this level will see the dollar test the pair’s 200-day MA rate currently at 1.032 and deeper into the zone between the green 38.2% Fibo at 1.023 and the blue 50% Fibo at 1.021. I honestly won’t rule out a move back to parity around the end of 1Q2023 and start of 2Q2023 as it coincides with the blue 61.8% Fibo rate and the green 23.6% Fibo.
Fundamentally I don’t see much support for the euro unless there is a concrete “Fed pivot”, which is looking unlikely. As the recessionary realities hit the global economy investors will run back to the dollar and higher yielding US bonds which will be dollar positive.
Technical indicators: The sell signal on the daily MACD indicator is losing momentum which could allow for a pullback towards 1.080 and 1.090. (This is where my sell limit orders will sit). The daily RSI however still has room to move lower. It’s the weekly indicators which are making me a greenback enthusiast (I’ll leave the weekly chart in the comments).
The weekly MACD buy signal is rolling over and looks set to cross to a sell signal and the weekly RSI has already started rolling over from its high of 68.70. The weekly RSI has not been this high since January 2021.
The dollar’s deprecation in 4Q2022 was clearly a melt up in investor risk-on sentiment which rode on the back of the supposed “Fed pivot”. The dollar milkshake is very much in play for 2023.
Dollar sweeps the floor with the world. 🧹🌎The DXY is cooling off but is the run over? Unlikely in my opinion but I am by no means an absolute master. So take the following with a grain of salt.
Ive noticed people on Twitter have stopped calling for the Dollar top to be in. Including myself when I thought the Double top would lead to a pull back. Little did I know what was actually going on.
Each local top the Dollar has put in, the correction held support right at the top of the Blue Zone on the FIBZIA (.764)
Worth noting that it corrected below all previous local tops but printed HL's the entire way. I dont think this time will be different.
I also do not think the FED will choose to prolong the inflation war and pain to cater to the U.N. who is pleading for a pivot.
High rates are making it hard for smaller countries and economies pegged to the dollar to service their debt and the USD will continue to destroy them while sucking up the liquidity.
If the FED pivots early it hurts America and at the end of the day I think the US will want to retain its status as the top dog no matter what happens to other countries.
Cue the #milkshaketheory
If you have never heard of this term or theory its def worth the 5 minute search.
There will be BloodListening to Jerome Powell speech this morning reminded me of the "I drink your milkshake scene" in There will be Blood.
For anyone that has not seen the movie or read the book I suggest doing so. You won’t be disappointed.
To summarize, the main antagonist Plainview (Jerome Powell) gives Eli (Global Liquidity) false hope before pulling the Rug.
Here is Jerome Powells speech this morning translated to the movie.
Here, if you have a milkshake, and I have a milkshake, and I have a straw. There it is, that's a straw, you see? Watch it. Now, my straw reaches across the room and starts to drink your milkshake.
So there it is.
Inflation is here to stay.
Rates will remain High.
Jerome will Drink your Milkshake.
Why is inflation reflecting into a strong dollar?You may have often seen us mention the U.S. Dollar Currency Index (DXY), as it has significant negative correlation to Bitcoin (BTC). Meaning typically when DXY is up, BTC is down, and vice versa. Over the past month, the DXY has broken out from its resistance and made highs not seen in twenty years. The DXY is a measure of US Dollar strength against a basket of its foreign peers.
Euro (EUR), 57.6% weight
Japanese yen (JPY) 13.6% weight
Pound sterling (GBP), 11.9% weight
Canadian dollar (CAD), 9.1% weight
Swedish krona (SEK), 4.2% weight
Swiss franc (CHF) 3.6% weight
(Note that other world currencies like the ‘Chinese Yuan’ and ‘Brazilian Real’ are not included in the DXY)
The DXY strength
Let’s begin to examine why the US Dollar (USD) has seen significant strength since 2021. First, the US Federal Reserve was not the only Central Bank in the world that increased money supplies in an attempt to ease economic uncertainties of the COVID pandemic. The European Central Bank, Bank of Japan, Bank of England, and many other central banks around the world followed similar monetary policies, commonly referred to as Quantitative Easing. Notice these same banks (ECB, BoJ, and BoE) are in charge of monetary policy for the largest weighted currencies in the DXY.
Your layman might ask: “Why is the dollar so strong, if inflation is so high? Shouldn’t I not want to be holding fiat in times like these?” And the answer was yes — when the Federal Reserve began printing COVID stimulus cash in 2020. But as global markets soften, the safe heaven has always been to flee to cash.
The USD as a reserve currency
This is because the USD has been the world reserve currency since Post World War II agreements and the establishment of the ‘Brentton Woods System’. As the world began to rebuild post war, as trade and commerce returned — the US dollar’s strength as the world reserve currency was hardened. Even as the US broke terms of the Brentton Woods System, when Richard Nixon took the US off the ‘gold standard’ (a standard that meant that USD was convertible to gold bullion), the Dollar had already cemented itself as the means in which debts would be issued and commodities would be traded in, around the world.
Which leads us back to ECB, BoJ, and BoE. If the Fed is printing dollars, and the largest central banks are doing the same, that negates the negative effects on the increased USD supply compared to its peers. In fact it increases USD demand. If debts around the world are most commonly issued in USD, these same central banks need to continue to print their currency to keep up with the demand to convert to USD and pay these debts, creating a vicious cycle that exacerbates effects further.
Once the world economies are through the hangover of stimulus injection, the United States is expected to bounce back the soonest. When it does, investment will return and rush to growth sectors. And again, putting further strain on dollar demand. This is significantly dangerous to all sovereign debt, as the USD rapidly appreciates within the next few years, and its peers experience massive devaluation. Described like a straw sucking a milkshake, all of this pressure is expected to pull liquidity into the United States creating an unsustainable vortex.
‘The Dollar Milkshake’ theory
This is the foundation of the ‘Dollar Milkshake Theory’ popularised by Brent Johnson of Santiago Capital, and it is exactly why you need to be very cautious of the Dollar Index as it breaks out from resistance. This theory really makes you rethink the Dollars strength as the world reserve currency.
Suddenly, DXY trading at $120 doesn’t sound so far-fetched.
I implore you to read more on the ‘Dollar Milkshake Theory’. I find it the most fascinating theory in finance currently, and it summarises the Dollar Index strength we have seen so perfectly.
Take a visit to the team at Real Vision Finance, who exceptionally explain this theory better than I can.
While watching it, keep in mind this was published in September of 2021, when the DXY was trading at $92 and just starting the breakout from its ‘double bottom’.
Then make sure to follow the Milkshake Man himself, Brent Johnson’s Twitter @SantiagoAuFund. Brent mostly follows traditional markets, but you will see him from time to time mingle with the Crypto Twitter crowd. Drink up and don’t forget to read the rest of the Fundamental Fridays articles!
LINKUSDT Scenario CastingMy Scenario Casting for Chainlink. IMO there's a great possibility for a major bear coming for LINK and we could possibly see it going back to $4. This would need to coincide with the dollar strength and weakness of bitcoin. I have shared some charts predicting a strong dollar in the upcoming weeks, dollar strength is bad for crypto against fiat in general. Things change very quickly in the crypto market, always size your positions so you dont get burnt too much if your analysis is wrong
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Good Luck!!!!
Inverse chart
XAUXAG ratio to go to 20, could possibly go lowerXAUXAG ratio to go to 20, could possibly go lower, that's a strong case for silver. Not betting so much on the pullback, but the dollar strength could initially mean a dip in both Gold and Silver, but when the bounce back silver will gain at a much faster rate than gold.
Not a bad idea to jump in now if you are not using leverage.
What do you think? Drop a comment below and share your own charts.
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EURUSD Long term set upEURUSD is in a major significant level, long term resistance and trend. My assessment is that it will get weak and potentially could go below 1 even up to 0.85.
Previous analysis on EURUSD in related links.
Let me know what you think and share your charts.
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Update on DXYI initially had a target of 93.15 for the dollar index. The target has been reached and the price broke the level and the next estimate is 92.66.
There is also a possibility of over performance to the 91 level. EURUSD is currently in a very significant level and if the level repels the price (which it will most likely do) it probably will be followed back by a pull back in silver and gold as well as crypto, however at the moment DXY is not showing signs of recovery
Long term Bitcoin AnalysisBitcoin has been bullish in the past week, and the price is showing rejection in the weekly long term trend. The rejection will only be confirmed on Sunday.
My prediction is that BTC has hit a resistance level at 11,500 and will rest and sell off to between 9000-6000 and form a third relative low and then we will enter a bull market again.
This may take time, make sure you are liquid enough for when its time to moon
Would love to see your comments on this one. This is a bold call