How One Idea Rewired the Global Economy Brent Johnson’s provocative framework predicted dollar dominance at a time when the consensus was pointing the other way and markets have been grappling with the consequences ever since.
When Brent Johnson, a portfolio manager at Santiago Capital, first sketched out what he called the Dollar Milkshake Theory in 2018, reaction from mainstream economists was, at best, politely skeptical. The dollar, they argued, was a fading hegemon — its reserve currency status eroding, its geopolitical influence in retreat, its domestic deficits too large to sustain credibility. Johnson disagreed. Emphatically. His thesis was not merely that the dollar would survive; it was that the entire architecture of global finance was quietly engineered to make the dollar stronger, precisely at the moment everyone expected it to collapse.
In the years since, the Dollar Milkshake Theory has moved from contrarian curiosity to required reading in institutional trading desks from London to Singapore. To understand why, you first need to understand the milkshake.
The Mechanics of the Milkshake
Johnson’s central metaphor is disarmingly simple. Imagine the global economy as a large cup filled with a milkshake, a rich blend of capital, liquidity, and debt created through decades of quantitative easing, fiscal stimulus, and monetary expansion by central banks worldwide. Every major economy contributed to this mixture: the European Central Bank, the Bank of Japan, the People’s Bank of China, and the Federal Reserve all poured in trillions. The milkshake was enormous.
Now insert a straw. That straw, in Johnson’s framework, is the United States dollar specifically, the dollar’s unique structural advantages that allow it to pull capital from every corner of the globe: its status as the world’s reserve currency, the depth and liquidity of U.S. Treasury markets, dollar-denominated global debt (estimated at over $13 trillion outside the United States), and the Federal Reserve’s ability to set the de facto benchmark interest rate for the entire planet.
When the Fed raises interest rates, the straw becomes more powerful. Capital that was previously deployed in emerging markets, European bonds, or commodity-linked currencies suddenly faces a compelling alternative: the safety and yield of U.S. dollar assets. The milkshake gets sucked upward into the dollar. Currencies from Ankara to Buenos Aires feel the pull. Commodity exporters that priced their goods in dollars face margin compression. Nations with dollar-denominated sovereign debt see repayment costs balloon almost overnight.
When Theory Became Reality
The theory’s most dramatic real-world validation came in 2022. As the Federal Reserve launched its most aggressive rate-hiking cycle in four decades — raising the federal funds rate from near zero to over five percent in roughly eighteen months the DXY dollar index surged to its highest level in two decades, briefly breaching 114. The consequences for the rest of the world were swift and severe.
The British pound collapsed to near parity with the dollar in September 2022, triggering a gilt market crisis that ultimately forced the resignation of Prime Minister Liz Truss. The Japanese yen fell to its weakest level since 1990, prompting repeated intervention by the Bank of Japan and ultimately forcing a historic unwind of its yield curve control policy. Emerging market currencies across South Asia, Sub-Saharan Africa, and Latin America were battered. Sri Lanka defaulted on its external debt. Pakistan required an emergency IMF bailout. Ghana, Zambia, and Ethiopia faced restructuring. The milkshake was being consumed.
None of this, Johnson’s adherents noted, required the United States to be in economic good health. That is one of the theory’s most counterintuitive and controversial claims: the dollar can strengthen even as the U.S. economy weakens, because what matters is relative strength. If the rest of the world is drowning faster, capital still flows toward the dollar as the least-bad option.
Structural Forces That Make the Straw So Powerful
Critics of the theory often focus on U.S. fiscal profligacy, the multi-trillion-dollar deficits, and the ballooning national debt as evidence that dollar dominance must eventually end. Johnson acknowledges these vulnerabilities but argues they are precisely what make the milkshake dynamic so potent in the near term. The U.S. government needs to finance its debt by issuing Treasuries. The more Treasuries it issues, the more global actors from central banks to sovereign wealth funds to commercial banks must hold dollars to participate in that market.
Furthermore, the global banking system runs on dollar liquidity. When financial stress emerges anywhere in the world, dollar demand surges as institutions rush to cover liabilities, meet margin calls, and reduce risk. The dollar, paradoxically, strengthens in crises, even crises that originate in the United States. We saw this during the 2008 financial crisis. We saw it again during the COVID-19 shock of March 2020, when the dollar index spiked sharply before the Fed deployed unlimited swap lines to foreign central banks.
The Geopolitical Dimension
The Dollar Milkshake Theory has also intersected with the accelerating debate over de-dollarization. The BRICS bloc , Brazil, Russia, India, China, and South Africa, with several new members added in recent years, has made reducing dollar dependency a stated geopolitical objective. Russia’s expulsion from the SWIFT messaging system following its 2022 invasion of Ukraine intensified those efforts. Saudi Arabia has explored pricing some oil sales in yuan. Central banks globally have quietly diversified reserves into gold.
Yet Johnson’s framework offers a sobering retort to de-dollarization optimists: structural change in the global monetary system is measured in decades, not quarters. As long as the world’s most important commodity markets, debt markets, and trade invoicing remain predominantly dollar-denominated, the straw stays in the cup. Every attempt by an emerging economy to diversify away from the dollar is constrained by the very dollar debt. Those economies carry debt that can only be serviced in dollars.
A Warning, Not a Celebration
It is worth noting that Johnson does not present the Dollar Milkshake Theory as a triumph of American economic virtue. He frames it more as a structural inevitability, a pressure valve built into the global financial architecture that, when it releases, creates enormous dislocations. A stronger dollar is good news for American consumers and importers, but it is a deflationary sledgehammer for the emerging world. It raises borrowing costs, suppresses commodity revenues, and forces central banks to choose between defending their currencies and supporting their own domestic economies.
In that sense, the theory carries a moral dimension that its most enthusiastic Wall Street disciples sometimes overlook. Dollar strength is not benign. It exports financial stress. It concentrates the costs of American monetary policy on nations with the least capacity to absorb them. The IMF has repeatedly flagged “dollar spillover effects” as a systemic risk to global financial stability.
As the global economy navigates an era of persistent inflation, slowing growth, and rising geopolitical fragmentation, the Dollar Milkshake Theory remains one of the most analytically coherent frameworks for understanding the tensions pulling at the seams of international finance. Whether the straw eventually cracks under its own weight, whether rising U.S. debt, political dysfunction, or a genuine multipolar monetary system finally loosens the dollar’s grip is the defining macroeconomic question of the coming decade.
For now, the milkshake keeps getting sipped.
