How the U.S. Dollar Becomes a Global Capital Vacuum: Understanding Brent Johnson's Milkshake Theory

Brent Johnson, CEO of Santiago Capital, introduced a provocative economic hypothesis that challenges how we understand global finance. His Dollar Milkshake Theory uses an unconventional metaphor to explain why capital perpetually flows toward the United States, even as the global economy faces unprecedented stress. Far from being just academic theorizing, this framework has tangible implications for investors worldwide—particularly those holding cryptocurrencies and alternative assets.

The Core Mechanism: Why the Dollar Keeps Winning

Imagine the global financial system as a beverage system. The U.S. dollar functions as the straw, continuously extracting capital and liquidity from economies worldwide. This isn’t coincidence—it’s structural.

When the Federal Reserve implements tighter monetary policies and raises interest rates while other central banks maintain looser stances, something predictable happens: investors chase yield. Higher returns in dollar-denominated assets create a magnetic pull on capital. Governments, institutional investors, and even emerging market operators redirect their holdings into U.S. Treasury bonds, stocks, and other dollar-backed instruments.

Meanwhile, the U.S. dollar remains the world’s primary reserve currency—a status that amplifies this effect. As demand for dollars increases, the currency strengthens relative to others. This creates a self-reinforcing cycle where wealth and liquidity concentrate within American financial markets.

The Process: From QE to Devaluation

The mechanics unfold in distinct phases:

Phase One: Global Money Printing. When recession threatens or growth stalls, central banks worldwide resort to quantitative easing. The Bank of Japan, European Central Bank, and others pump liquidity into their economies. Global money supply expands dramatically, but the relationship between major currencies remains skewed.

Phase Two: Capital Flight. With abundant liquidity chasing returns, investors compare opportunities globally. The U.S. offers relatively higher yields through both its interest rate structure and the dollar’s reserve currency status. Capital systematically migrates toward dollar-denominated investments.

Phase Three: Currency Depreciation Externally. As dollars flow inward, other currencies weaken. The Thai baht, Brazilian real, Mexican peso—all experience downward pressure. This depreciation creates inflation domestically in those nations, increasing import costs and destabilizing economies that depend on foreign goods.

This is where the Dollar Milkshake Theory reveals its darker implications: while the U.S. attracts capital and strengthens its financial position, other economies suffer liquidity drains and inflationary crises.

Historical Precedent: When Theory Meets Reality

The 1997 Asian Financial Crisis provides a textbook example. Southeast Asian economies had borrowed heavily in dollars. When the Thai baht collapsed and capital flows reversed, countries like Thailand, Indonesia, and South Korea faced devastating currency crises. The stronger dollar amplified their debt burdens while depleting their foreign reserves.

The 2010–2012 Eurozone debt crisis followed similar patterns. As investors fled euro-denominated assets amid sovereign debt concerns, capital surged into U.S. treasuries. The euro weakened, dollar strength peaked, and southern European nations faced soaring borrowing costs.

Even during the COVID-19 pandemic’s initial shock in 2020, this dynamic reasserted itself. Despite the Federal Reserve cutting rates to near-zero and launching massive QE programs, the dollar spiked as a safe-haven asset. Global capital sought the perceived safety of U.S. markets, even as monetary policy suggested otherwise.

The Crypto Wild Card

This is where the Dollar Milkshake Theory intersects with cryptocurrency markets in ways worth examining.

As currency devaluation pressures mount and dollar strength persists, emerging market populations increasingly recognize the limitations of traditional fiat. Bitcoin, Ethereum, and other decentralized digital assets offer something traditional markets cannot: immunity from central bank policy and currency manipulation.

For investors in developing economies facing currency devaluation, cryptocurrencies represent a hedge. A Pakistani citizen watching the rupee weaken has incentive to hold Bitcoin. A Nigerian facing naira depreciation sees stablecoins as value preservation tools. The 2021 cryptocurrency bull run wasn’t solely driven by speculation—it coincided with inflation fears, dollar strength, and global currency instability.

However, a paradox emerges: when the dollar strengthens sharply, non-U.S. investors paradoxically face higher costs entering crypto markets. A stronger dollar makes Bitcoin and Ethereum more expensive for foreign buyers, potentially dampening adoption precisely when they need it most.

Over longer time horizons, though, cryptocurrencies may serve as the ultimate hedge against the milkshake dynamic itself. If confidence in fiat currencies erodes—or if the Dollar Milkshake Theory’s predictions about eventual dollar weakness materialize—digital assets offering decentralization and scarcity could become preferred stores of value.

The Theory’s Constraints

Johnson’s framework reveals important truths about global capital flows and dollar dominance. Yet predictions built on it carry uncertainty. Economic systems respond to multiple variables—geopolitical shifts, technological innovation, policy surprises—that don’t always align with theoretical projections.

The Dollar Milkshake Theory explains powerful structural forces, not inevitable outcomes. Understanding these forces helps investors position themselves, whether through traditional hedges or emerging alternatives like cryptocurrencies. But treating it as absolute prophecy rather than useful framework invites error.

The real insight isn’t that the dollar will dominate forever, but that understanding why capital currently flows toward it—and recognizing when that dynamic might shift—offers strategic advantage in uncertain times.