USD is the most potent and prevalent currency in the world at present. Every nation depends on the USD to make international trades and fulfil their basic needs, such as oil, food, and other trades.
The Dollar Milkshake Theory was created by Brent Johnson, who notes that the World Trade forums are a collective Dollar Milkshake served by the Federal Reserve.
However, Johnson also exclaims that when the US Central Bank needs its USD reserves, it is going to start straw out the delicious USD concoction.
During such a scenario, the nations that are dependent on the dollar for making sales and purchases will get into trouble. As per Johnson, the international decline of economies around the world during the last year is the result of the same phenomenon.
Federal Reserve to Increase Interest Rates
The dollar Milkshake is a graphic image that investor Brent Johnson has used to attract the attention of many economists and financial analysts around the world. He has also issued another image called Dollar Wrecking Ball to the same effect.
Since 2021, the Feds have been raising interest rates, and despite the fact these interest rates are not historically higher, the extraction of USD from the international market is more rapid than ever before by US Central Banks.
This is also the cause why investing in US Bonds has become more attractive for investors at present. However, the explosion of exponentially increasing dollar rates means that the nations that have outstanding debts in USD are getting crushed under its increasing rates, and they are also facing more issues in paying for necessary products to run their economies, such as crude oil.
To this end, the supply and demand dynamics on the USD have broken, which is sending non-US economies into recession.
Investors can use the DXY or Dollar index to check the rapid rate of change in USD prices. Investors and analysts have also noticed that the price movement of Bitcoin and other cryptocurrencies has been moving in inverse proportion to the rise of USD.
The main reason behind this is, once again, Dollar Milkshake because people have become pulling out their investments from Bitcoins and put them into USD accumulation.
The increased demand for USD among investors is because most consider it a less risky bet than Bitcoin. Every time the Fed chair speaks, everyone is glued to the public address to find out when the next pivot is approaching.
The situation for US citizens has worsened to the point that they are unable to get new debts, cannot pay their mortgages and are unable to pay off their remaining debts. However, most analysts are certain that the pivot is inevitable and it will help recover the crypto portfolio losses.
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