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The Dollar Milkshake Theory, Explained (TDE, Peter Earle)thedailyeconomy.org/article/the-dollar-milkshake-theory-explained/
770 sats \ 4 comments \ @denlillaapan 2 Apr econ
I always assumed that the "dollar milkshake theory" came from Kelis' mega hit from 2003 (Mah milkshake brings all the boys to the yard...).
Earle doesn't mention that in this piece, but he does critically assess the idea that dollar assets forever can absorb world liquidity. The milkshake theory
...claims to offer a framework for explaining the US dollar’s strength in an era of expanding liquidity. It posits that global liquidity injections — largely a product of excessive monetary easing by central banks — are ultimately siphoned into US assets, strengthening the dollar and exerting deflationary pressure on weaker currencies.
So far, so good.
At its heart, the Dollar Milkshake Theory relies on the notion that the Federal Reserve’s policies will always create an economic environment where capital is drawn disproportionately to US assets.
That, I'm much less certain off. Pretty sure Brent Johnson and other proponents argue that the dollar's path-dependent network/liquid financial markets organically makes it a much more attractive place for liquidity—not that the Fed is engineering it/backstopping it.
NEXT, and this I find the more crucial part:
Another core weakness in the Dollar Milkshake Theory is its assumption that the dollar will remain permanently dominant because global institutions and sovereign entities have no alternative. This is a mistake.
the dollar’s hegemony is not guaranteed. Additionally, the US government’s willingness to use the dollar as a tool of financial coercion — sanctions, asset freezes, and trade restrictions — has accelerated global efforts to diversify reserves away from the greenback.
Yup—though the process is slow and gradual, not revolutionary and about to upend the world next Tuesday (#921437).

"While the Dollar Milkshake Theory acknowledges the capital-absorbing nature of the dollar, it fails to recognize that this phenomenon is itself a symptom of financial repression, rather than market efficiency."

Whatcha think, Stackers? Is Mr. (well, Dr. now!) Earle out fishing, or is he on to something?
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28 sats \ 2 replies \ @Undisciplined 2 Apr
I'm struggling to find it right now, but Bob Murphy had a conversation with Brent Johnson about the Dollar Milkshake Theory and I didn't think Johnson had very strong explanations for some of Bob's criticisms.
They had a debate on the subject, but that's not what I was thinking of.
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27 sats \ 1 reply \ @denlillaapan OP 2 Apr
hm, interesting. Yeah would love to check that one out
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0 sats \ 0 replies \ @Undisciplined 2 Apr
If I even remember Bob's main objection, I'll share that.
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0 sats \ 0 replies \ @Solomonsatoshi 2 Apr
The US once dominated global trade- after WW2 it was home to most of the worlds manufacturing capacity. At the same time is assumed global leadership in banking and money- the USD was established as the basis of the Breton Woods agreement. USA thus became the centre of the global financial markets. Even after the dollar/Nixon reneged upon the USDs central role under Breton Woods, as redeemable for gold, USA and the USD remained in place as central to the global financial markets. Since that time however USA has declined in importance as a trading nation- China today dominated global trade in manufactured goods and commodities. China is building its alternative trade payments network and increasingly trade is and will be denominated in Yuan- this process may still be gradual but there comes a point when a trend such as Chinas increasingly central role to global trade triggers a rapid decline in the central role of the USA and the USD. This is what Trump is seeking to delay, perhaps even prevent. His threats to BRICS nations if they continue to move away from USD denominated trade is recognition of the fragile and declining status of the USD. With Iran and Russia already selling their oil mostly for Yuan and Saudi Arabia joining the mBridge digital trade payments protocol the USD is close to losing its post Nixon petrodollar dominance.
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