Dollar Milkshake Theory: The Desk Guide (2026)

The Desk’s Guide

By Ken Chigbo, Founder, KenMacro, 18+ years across discretionary and systematic strategies, UK macro desk.

Find Ken on X @realkenchigbo · YouTube @Realkenchigbo · MACRO MASTERY Discord

Updated 2026-05-23

What the theory is and who created it

Brent Johnson is the CEO of Santiago Capital, a San Francisco-based wealth management firm. He presented the dollar milkshake theory publicly from around October 2018, expanding the framework at the MacroVoices conference in January 2019. The central image is straightforward: decades of quantitative easing by central banks across the world created a vast pool of liquidity, a global milkshake. The US dollar, as the world’s reserve currency, is the straw. When financial stress forces a flight to safety, that straw sucks the milkshake dry, concentrating purchasing power in US dollar assets while draining it from everywhere else.

The metaphor captured something that traditional exchange-rate models struggled to articulate: the dollar can surge not because the US economy is thriving in isolation, but because the architecture of global finance is built on dollar foundations. Johnson was not predicting a US boom. He was predicting a dollar squeeze.

The mechanism: global dollar debt and reserve demand

The load-bearing pillar of the theory is dollar-denominated debt held outside the United States. According to Bank for International Settlements data, dollar credit to non-US borrowers stood at approximately $13.7 trillion at end-Q1 2025, growing at around 5 per cent year-on-year. By end-2025 the BIS put the figure near $14.3 trillion.

Every one of those dollars of debt must eventually be repaid, rolled over or serviced in US dollars. Borrowers cannot simply switch to euros or renminbi at the moment of need because their liability is denominated in USD. That creates a structural, recurring demand for dollars that has nothing to do with US interest rates or growth. Layer on top of that the reserve-currency function: central banks worldwide hold dollars as their primary foreign exchange reserve, global oil and commodities contracts are priced in dollars, and the Swift settlement system routes the majority of cross-border payments through dollar correspondent accounts. The demand is systemic, not cyclical.

Johnson’s argument is that this system cannot be unwound quickly. Even if policymakers wanted to reduce dollar reliance, the stock of existing dollar debt means the demand persists for years or decades.

Why the dollar can rise even as the Fed eases

The counterintuitive part of the thesis is that a Fed rate-cutting cycle does not necessarily weaken the dollar. Johnson’s reasoning runs as follows.

First, relative policy matters more than absolute policy. If the Fed cuts rates but the European Central Bank or the Bank of Japan eases by more, the interest-rate differential still favours the dollar. Capital allocators track spreads, not absolute levels.

Second, a crisis that forces the Fed to ease aggressively is also a crisis that drives global investors toward safety. US Treasuries remain the deepest, most liquid sovereign bond market on Earth. In a broad risk-off move, demand for Treasuries and dollars rises even as yields fall.

Third, dollar-denominated debt creates demand that is largely inelastic to the cost of borrowing. A foreign company with a dollar bond maturity does not care what the Fed funds rate is today. It needs dollars to repay principal, full stop. That demand does not disappear because the Fed is cutting.

The net effect is that liquidity injected by the Fed can flow outward into global asset markets on the way up, but when sentiment turns, the reversal is asymmetric: capital rushes back into dollars faster than it left, because the exit route is narrow and the liabilities are fixed.

The criticisms and honest caveats

The dollar milkshake theory is a macro thesis, not a trading system, and it has attracted serious pushback.

The most prominent counterargument is de-dollarisation. Russia and China have materially reduced the dollar share of their bilateral trade since 2022, favouring gold settlement and local currencies. BRICS nations have discussed an alternative reserve currency, though Indian Foreign Minister S. Jaishankar stated in 2025 that India “has never been for de-dollarisation” and that no formal BRICS currency proposal exists. The shift is real but the pace is gradual.

A second critique is that the theory treats the dollar’s dominance as near-permanent, when history shows reserve currencies do rotate over decades. Sterling held the role for much of the 19th and early 20th centuries before yielding to the dollar. Critics argue the milkshake framework underweights the possibility of a structural transition to a multipolar currency system.

Third, the theory has faced real-world stress tests. The US dollar index declined by roughly 9 per cent against a broad basket of currencies in 2025, suggesting that the structural demand argument does not override macro headwinds in every environment.

Johnson himself has acknowledged these tensions. He frames the theory as a sequencing argument, not a permanent prediction: dollars first, then deeper sovereign stress, then possibly a migration toward harder assets. That framing matters. Traders who treated the thesis as a simple long-dollar conviction in every market condition have been caught offside. The milkshake is real; the timing is not guaranteed.

How the desk treats it

The desk’s honest take is that the dollar milkshake theory is the most coherent structural argument for dollar strength over a multi-year horizon. The $14-plus trillion in dollar-denominated debt outside the US is not an abstraction. It is a real liability that real borrowers must service in real dollars. That demand does not evaporate because a central bank prints more local currency.

The desk does not use this thesis to trade news flow or short-term rate decisions. It is a backdrop for positioning, not a trigger. What Johnson’s framework usefully provides is a reason to treat sharp dollar selloffs with scepticism rather than treating every Fed pivot as the start of a dollar bear market.

The caveats are genuine. De-dollarisation is happening at the margin. The timeline for a dollar surge is impossible to pin down. And macro theses that are directionally right but early can be very expensive to hold.

The desk treats the milkshake as one lens among several. It earns weight in a portfolio when combined with other signals: rising emerging market spreads, widening cross-currency basis, tightening dollar funding conditions. By itself, it is a framework. Combined with price confirmation, it becomes actionable.

Frequently asked

Who created the dollar milkshake theory?

Brent Johnson, CEO of Santiago Capital, a San Francisco-based wealth management firm. He presented the framework publicly from around October 2018 and expanded it at the MacroVoices conference in January 2019.

What is the milkshake metaphor?

Global central banks created a large pool of liquidity, the milkshake. The US dollar, as the world’s reserve currency, is the straw. In a crisis, capital flows into dollar assets and the dollar ‘drinks’ the global liquidity pool while draining it from other economies.

How much dollar-denominated debt sits outside the United States?

According to BIS data, dollar credit to non-US borrowers was approximately $13.7 trillion at end-Q1 2025 and expanded to around $14.3 trillion by end-2025. This stock of debt must be serviced in dollars regardless of what the Fed does with rates.

Does the theory predict the dollar will always rise?

No. Johnson frames it as a sequencing argument, not a permanent directional call. The dollar index fell roughly 9 per cent in 2025 against a broad basket. The thesis is about structural demand that can override other factors in stress conditions, not a claim that the dollar rises in every environment.

What is the main counterargument to the dollar milkshake theory?

De-dollarisation. Russia and China have cut dollar transaction share materially since 2022. BRICS nations continue to explore alternatives. Critics also argue the theory underweights the historical precedent that reserve currencies do rotate over long periods. No BRICS reserve currency exists as of mid-2026, but the gradual shift is real.

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