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?