Brent Johnson: Dedollarization is complex and unlikely, the Dollar Milkshake Theory reveals market impacts, and a currency crisis is mathematically inevitable

The desire for dedollarization exists but is complex to achieve. The Dollar Milkshake Theory outlines how sovereign debt crises impact markets. US assets are predicted to outperform due to superior market structure.

Key takeaways

The desire for dedollarization exists but is complex to achieve.
The Dollar Milkshake Theory outlines how sovereign debt crises impact markets.
US assets are predicted to outperform due to superior market structure.
Central banks have managed to prevent a sovereign debt crisis so far.
A currency crisis is inevitable due to the monetary system’s design.
Central banks’ primary role is to perpetuate the state by acting as lenders of last resort.
The system’s design mandates growth, making gradual unwinding unlikely.
A crisis is inevitable, but its timing is uncertain due to potential growth from technology.
Betting against central banks’ ability to manage challenges is risky.
The dollar has significantly impacted other reserve currencies since 2021.
The world is more dependent on the US dollar today than ever before.
The euro dollar network is the largest for dollar-based transactions outside the US.
The narrative around dedollarization often misunderstands the complexity of the issue.
The dollar’s status as the global reserve currency is due to private market preferences.
The US dollar is expected to strengthen against other fiat currencies in the long term.

Guest intro

Brent Johnson is CEO of Santiago Capital, an investment firm focused on macro strategy and capital allocation. He developed the Dollar Milkshake Theory in 2018 to explain how the US dollar absorbs global liquidity during debt crises, a framework that has guided his analysis of currency markets and capital flows over the past several years. Johnson has become a prominent voice on the structural dynamics of the dollar-based monetary system, including the role of the Eurodollar market and how emerging technologies like stablecoins may reshape dollar hegemony.

The complexities of dedollarization

— Brent Johnson
The geopolitical implications of the US dollar as the global reserve currency create challenges for dedollarization.
The Dollar Milkshake Theory provides a framework for understanding how debt crises affect markets.
— Brent Johnson
US assets are predicted to outperform due to their market structure.
— Brent Johnson
Governments and central banks have managed to prevent a sovereign debt crisis so far.
— Brent Johnson

The inevitability of a currency crisis

A currency crisis is inevitable due to the monetary system’s design.
— Brent Johnson
The monetary system requires constant growth due to interest on loans.
— Brent Johnson
The primary role of central banks is to perpetuate the state by acting as lenders of last resort.
— Brent Johnson
Gradual unwinding of the system over a long period is unlikely.
— Brent Johnson

The role of central banks in economic stability

Central banks must prevent economic contraction and stimulate growth.
— Brent Johnson
A crisis is inevitable, but its timing is uncertain due to potential growth from technology.
— Brent Johnson
Betting against central banks’ ability to manage challenges is risky.
— Brent Johnson

The dollar’s impact on global currencies

The dollar has significantly impacted other reserve currencies since 2021.
— Brent Johnson
There is a growing desire for dedollarization globally.
— Brent Johnson
The world is more dependent on the US dollar today than ever before.
— Brent Johnson
The euro dollar network is the largest for dollar-based transactions outside the US.
— Brent Johnson

Misunderstandings about dedollarization

The narrative around dedollarization often misunderstands the complexity of the issue.
— Brent Johnson
The dollar’s status as the global reserve currency is due to private market preferences.
— Brent Johnson
The narrative of dedollarization lacks material change despite discussions among BRICS nations.
— Brent Johnson

The future of the US dollar

The US dollar is expected to strengthen against other fiat currencies in the long term.
— Brent Johnson
The dollar’s strength is not due to its own merits but rather the troubles faced by other economies.
— Brent Johnson
The dollar’s value relative to other currencies can rise during global crises.
— Brent Johnson

Stablecoins and their geopolitical implications

The US will not allow stablecoins to undermine the dollar’s dominance.
— Brent Johnson
The US is using stablecoins to extend its dollar network globally.
— Brent Johnson
The world may adopt US dollar stablecoins as the preferred medium of exchange.
— Brent Johnson
Stablecoins can be a stealth weapon for the US to exert power over other nations.
— Brent Johnson

The potential growth of stablecoins

Stablecoins could easily reach a market size of $3 trillion, with potential estimates going as high as $10 trillion.
— Brent Johnson
Stablecoins can serve as a geopolitical tool for the US to exert more control over the dollar network globally.
— Brent Johnson
The collapse of Silicon Valley Bank was significantly influenced by technology enabling rapid withdrawals.
— Brent Johnson
The adoption of stablecoins in developing countries could accelerate the effects of the Dollar Milkshake Theory.
— Brent Johnson

The strategic use of stablecoins in crisis situations

Stablecoins could enable rapid dollarization in countries facing currency crises.
— Brent Johnson
The technology behind stablecoins can significantly accelerate the process of dollarization.
— Brent Johnson
The potential for a ‘stablecoin style Arab Spring’ exists, where stablecoins could catalyze revolutions.
— Brent Johnson
The military has established doctrines on using money as a weapon, which can be enhanced by new technologies like crypto.
— Brent Johnson

The geopolitical landscape and economic strategies

A global divorce between China and the United States is inevitable.
— Brent Johnson
The dollar is predicted to be the best of the worst fiat currencies moving forward.
— Brent Johnson
Investors should favor the United States markets over international options due to lower risk.
— Brent Johnson
Owning gold is important as a hedge against debasement.
— Brent Johnson

Key takeaways

The desire for dedollarization exists but is complex to achieve.
The Dollar Milkshake Theory outlines how sovereign debt crises impact markets.
US assets are predicted to outperform due to superior market structure.
Central banks have managed to prevent a sovereign debt crisis so far.
A currency crisis is inevitable due to the monetary system’s design.
Central banks’ primary role is to perpetuate the state by acting as lenders of last resort.
The system’s design mandates growth, making gradual unwinding unlikely.
A crisis is inevitable, but its timing is uncertain due to potential growth from technology.
Betting against central banks’ ability to manage challenges is risky.
The dollar has significantly impacted other reserve currencies since 2021.
The world is more dependent on the US dollar today than ever before.
The euro dollar network is the largest for dollar-based transactions outside the US.
The narrative around dedollarization often misunderstands the complexity of the issue.
The dollar’s status as the global reserve currency is due to private market preferences.
The US dollar is expected to strengthen against other fiat currencies in the long term.

Guest intro

The complexities of dedollarization

— Brent Johnson
The geopolitical implications of the US dollar as the global reserve currency create challenges for dedollarization.
The Dollar Milkshake Theory provides a framework for understanding how debt crises affect markets.
— Brent Johnson
US assets are predicted to outperform due to their market structure.
— Brent Johnson
Governments and central banks have managed to prevent a sovereign debt crisis so far.
— Brent Johnson

The inevitability of a currency crisis

A currency crisis is inevitable due to the monetary system’s design.
— Brent Johnson
The monetary system requires constant growth due to interest on loans.
— Brent Johnson
The primary role of central banks is to perpetuate the state by acting as lenders of last resort.
— Brent Johnson
Gradual unwinding of the system over a long period is unlikely.
— Brent Johnson

The role of central banks in economic stability

Central banks must prevent economic contraction and stimulate growth.
— Brent Johnson
A crisis is inevitable, but its timing is uncertain due to potential growth from technology.
— Brent Johnson
Betting against central banks’ ability to manage challenges is risky.
— Brent Johnson

The dollar’s impact on global currencies

The dollar has significantly impacted other reserve currencies since 2021.
— Brent Johnson
There is a growing desire for dedollarization globally.
— Brent Johnson
The world is more dependent on the US dollar today than ever before.
— Brent Johnson
The euro dollar network is the largest for dollar-based transactions outside the US.
— Brent Johnson

Misunderstandings about dedollarization

The narrative around dedollarization often misunderstands the complexity of the issue.
— Brent Johnson
The dollar’s status as the global reserve currency is due to private market preferences.
— Brent Johnson
The narrative of dedollarization lacks material change despite discussions among BRICS nations.
— Brent Johnson

The future of the US dollar

The US dollar is expected to strengthen against other fiat currencies in the long term.
— Brent Johnson
The dollar’s strength is not due to its own merits but rather the troubles faced by other economies.
— Brent Johnson
The dollar’s value relative to other currencies can rise during global crises.
— Brent Johnson

Stablecoins and their geopolitical implications

The US will not allow stablecoins to undermine the dollar’s dominance.
— Brent Johnson
The US is using stablecoins to extend its dollar network globally.
— Brent Johnson
The world may adopt US dollar stablecoins as the preferred medium of exchange.
— Brent Johnson
Stablecoins can be a stealth weapon for the US to exert power over other nations.
— Brent Johnson

The potential growth of stablecoins

Stablecoins could easily reach a market size of $3 trillion, with potential estimates going as high as $10 trillion.
— Brent Johnson
Stablecoins can serve as a geopolitical tool for the US to exert more control over the dollar network globally.
— Brent Johnson
The collapse of Silicon Valley Bank was significantly influenced by technology enabling rapid withdrawals.
— Brent Johnson
The adoption of stablecoins in developing countries could accelerate the effects of the Dollar Milkshake Theory.
— Brent Johnson

The strategic use of stablecoins in crisis situations

Stablecoins could enable rapid dollarization in countries facing currency crises.
— Brent Johnson
The technology behind stablecoins can significantly accelerate the process of dollarization.
— Brent Johnson
The potential for a ‘stablecoin style Arab Spring’ exists, where stablecoins could catalyze revolutions.
— Brent Johnson
The military has established doctrines on using money as a weapon, which can be enhanced by new technologies like crypto.
— Brent Johnson

The geopolitical landscape and economic strategies

A global divorce between China and the United States is inevitable.
— Brent Johnson
The dollar is predicted to be the best of the worst fiat currencies moving forward.
— Brent Johnson
Investors should favor the United States markets over international options due to lower risk.
— Brent Johnson
Owning gold is important as a hedge against debasement.
— Brent Johnson

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Source: https://cryptobriefing.com/brent-johnson-dedollarization-is-complex-and-unlikely-the-dollar-milkshake-theory-reveals-market-impacts-and-a-currency-crisis-is-mathematically-inevitable-bankless/