How the Stablecoin Milkshake will Redollarize the World

Key Concepts

• Dollar Dominance & De-dollarization: Despite desires for alternatives, the US dollar’s entrenched position, particularly through the Eurodollar network, makes de-dollarization challenging.
• Dollar Milkshake Theory: Rising interest rates strengthen the dollar due to global dollar-denominated debt, potentially causing crises but ultimately outperforming other assets. Central bank intervention has delayed, but not prevented, this outcome.
• Stablecoins as a US Strategic Tool: The Genius Act enables the US to leverage stablecoins, potentially creating a “Eurodollar 2.0” system and extending dollar dominance, even to the detriment of local sovereignty.
• US-China Financial Warfare: A “capital war” is unfolding, with the US and China building separate financial systems centered around the dollar/stablecoin stack and the Yuan/CBDC stack, respectively.
• Inevitable Crisis: The debt-based monetary system requires constant growth, making a crisis mathematically inevitable, though the timing remains uncertain.

The Dollar’s Enduring Power & the Threat of De-dollarization

The podcast segments begin by revisiting Brent Johnson’s “Dollar Milkshake Theory” (originally proposed in 2021). This theory predicted that rising interest rates would strengthen the US dollar due to the vast amount of dollar-denominated debt globally. While the anticipated sovereign debt crisis hasn’t fully materialized, the directional prediction of dollar strength has proven accurate, with the Dollar Index (DXY) increasing by 10% since 2018. This resilience is attributed to powerful intervention by governments and central banks, effectively “kicking the can down the road” through monetary policy. However, Johnson emphasizes that the inherent flaws of a debt-based system – requiring perpetual growth – make a crisis mathematically inevitable, even if the timing is unpredictable. The primary role of central banks is to perpetuate the state by preventing this contraction.

Despite increasing talk of de-dollarization, the US dollar remains dominant due to the sheer size and efficiency of the “Eurodollar network” – dollar transactions occurring outside the United States, estimated at over $10 trillion. The desire to move away from the dollar exists, but the ability to do so is limited without significant economic consequences.

Stablecoins: A Double-Edged Sword

A central theme is the potential impact of stablecoins, particularly in light of the recently passed Genius Act. This legislation is viewed as a strategic move by the US to leverage stablecoins, potentially creating a “Eurodollar 2.0” system with greater US control. Stablecoins have the potential to reach a $3-10 trillion market cap, rapidly expanding the dollar network. This expansion, however, could undermine local sovereignty in developing countries.

The speed and efficiency of stablecoins are highlighted, with the ability to dollarize economies like Venezuela – a process that previously took weeks or months – now potentially achievable in 48 hours. This rapid dollarization, facilitated by technology-enabled bank runs (as demonstrated by the Silicon Valley Bank collapse), could even catalyze political instability, drawing parallels to the Arab Spring. The US Army’s “Money as a Weapons System” handbook is cited as evidence of a pre-existing understanding of money’s power as a strategic tool, and the ironic co-option of technology initially designed to circumvent state control is noted. Africa and Latin America are already leading regions in stablecoin adoption due to pre-existing demand for dollars.

The US-China Financial Divide & Geopolitical Implications

The discussion frames the US-China relationship as a “capital war,” with the emergence of two distinct currency stacks. The US stack is centered around the dollar and stablecoins, while the Chinese stack focuses on the Yuan and a centrally controlled digital currency (CBDC). China views stablecoins as an “apex predator” threatening its financial system. A global divorce between the US and China is considered likely, leading to separate financial systems.

Investment Strategies in a Turbulent Landscape

Given that most asset classes are currently at or near all-time highs, investment recommendations focus on maintaining liquidity and positioning for future opportunities. The speakers continue to favor US markets, believing in the potential for US growth even in a global slowdown. Gold is recommended as a hedge against currency debasement, though the opportunity for significant gains may have passed. Holding cash or short-term bonds (like two-year bonds yielding 3.5-4% at the time of recording) is advised to capitalize on future opportunities, with a preference for dollar-denominated cash as “the best of the worst fiats.” Bitcoin experienced a pullback in the month prior to the discussion.

Conclusion

The podcast segments paint a complex picture of the global financial landscape. While de-dollarization is desired by many, the dollar’s dominance persists, and the US is actively leveraging new technologies like stablecoins to extend its financial influence. The unfolding financial competition with China, coupled with the inherent instability of the debt-based monetary system, suggests a turbulent future. Maintaining liquidity, diversifying into assets like gold, and strategically positioning within the US market are presented as prudent investment strategies in this uncertain environment. The key takeaway is that the dollar’s future isn’t necessarily one of decline, but rather one of evolution and adaptation, potentially through the very technologies designed to challenge its supremacy.