The Dollar Milkshake Theory, a topic of growing debate on YouTube, Reddit and other social platforms, purports to offer a framework to explain the strength of the US dollar in an era of liquidity expansion. It posits that global liquidity injections - largely the product of excessive monetary easing by central banks - end up being diverted into US assets, strengthening the dollar and putting deflationary pressure on weaker currencies.
While this framework has elements of truth, the theory is fundamentally flawed. It assumes that the distortions caused by government intervention are not only inevitable, but permanent, and ignores the long-term economic consequences of the financialization generated by artificial credit expansion. Moreover, it misreads the actual trajectory of global monetary dynamics, particularly as de-dollarization gains momentum in response to U.S. fiscal mismanagement and the use of its currency as a weapon.
Artificial liquidity and malinvestment
In essence, the Dollar Milkshake Theory is based on the idea that Federal Reserve policies will always create an economic environment where capital is disproportionately directed toward U.S. assets. Even so, this is not a feature of markets or superiority, but rather the distortions of expansionary monetary policy. A steady supply of artificially cheap credit and market interventions have created a global economic order in which capital is allocated not on the basis of productivity, innovation or comparative advantage, but on the relative ease of financial arbitrage within a system dominated by the Federal Reserve and other large central banks.
It is an arrangement that leads to serious malinvestment, where capital flows not to where it is most efficient, but to where it is temporarily most attractive due to manipulated interest rates and financial repression. Instead of productive investment in industries that drive organic economic growth, we see speculative bubbles: artificial intelligence stocks, real estate, U.S. Treasury bonds, Pokémon cards, non-fungible tokens and more. The problem is not only that bubbles divert investment from more deserving areas, but that they are not sustainable in the long term: the moment the Fed reverses its expansionary policies or the global financial system begins to restructure, these flows will dry up, leading to a painful