How stablecoins saved the dollar, with Brent Johnson, Santiago Capital

**Brent Johnson** (0:00)
The dollar doesn't ultimately win. Gold ultimately wins.
I started talking about it in 2018 I kind of really started hammering at home in 2019 For the first time in 40 years, interest rates were going to rise. I thought that that would make the dollar stronger. I said the dollar doesn't ultimately win. Gold ultimately wins. So gold is the ultimate winner of the milkshake. Stablecoin currency is better than their local currency. It just means it's the best option that they have, and people act in their own self-interest.

**Marc Baumann** (0:29)
Stablecoins and blockchain basically democratize the access to currencies, whereas before blockchain and stablecoins, these currency systems are much more closed off, right?

**Brent Johnson** (0:40)
Most stablecoins in the world are dollar stablecoins. And so people say, well, why don't they use gold or silver? Well, those stablecoins exist, but.

**Marc Baumann** (0:52)
Welcome to another episode of fiftyone Insights today with Brent Johnson, CEO of Santiago Capital. Brent, welcome to the show.

**Brent Johnson** (1:00)
Thanks for having me.

**Marc Baumann** (1:01)
Yeah, it's great to have you here, Brent. First things off, the sentence, stablecoins are a stealth weapon of empire. That's not a sentence that came from me, that the man who created the dollar milkshake theory, the framework that predicted the dollar would strengthen while everyone else was calling it, it will collapse. Brent runs Santiago Capital. As explained, he spent 25 years in the trenches of global macro, and he argues that USDT and USDC are doing something no military base or trade agreement ever could. They are quietly re-dollarizing the world from the bottom up. We get into why Tether holds more treasuries than the most countries, what the Genius Act really is, why other nations are terrified, and what happens when the Milkshake meets the blockchain.
Let's start with the Milkshake Theory, Brent. For listeners who are not familiar with the concept, what's the Milkshake Theory, when did you start that, and what is this all about?

**Brent Johnson** (1:56)
I started talking about it in 2018, first time, and then I really started hammering at home in 2019 Essentially, it was my belief that for the first time in 40 years, interest rates were going to rise. I thought that that would make the dollar stronger because as interest rates went up in the US.,
you would get paid more to deposit your money in the United States. I felt that for a number of reasons, some of them deserved, some of them not deserved, the United States has the straw, and when the rest of the world would print money, the United States would suck up all that capital into their own markets. That is largely what has happened over the last, call it six or seven years, the United States has attracted more capital than any other country in the world. Now, I thought that it would also lead to a global sovereign debt and currency crisis.
We got close, well, we had COVID in 2020, and then we got close to a sovereign crisis in 2022, but ultimately, the monetary authorities were able to get things under control and kick the can down the road. I still think that's possible. I still think it's possible we'll have that, and I think these stable coins are part of it, but that was essentially what the Milkshake was. The name came from a movie called There Will Be Blood about this oil executive who would, someone would try to sell him his land and he would say, I don't really need to buy your land. I can just stick a straw down on my side of the fence and I can drink your oil. And he said, I can drink your milkshake. And so that's where the name comes from. And I think for many reasons, as I said before, both deserved and under the deserve, the United States tends to drink the rest of the world's milkshake.

**Marc Baumann** (3:30)
Yeah, the United States also had high inflation during the past years, particularly during COVID. Why do you think they still sucked up so much of that dollar demand despite the high inflation?

**Brent Johnson** (3:41)
Well, I think it was the response to the high inflation. Again, I thought interest rates would go higher, but I did not think that the Federal Reserve would necessarily take them from 0% to 5% in one year when they started reacting to that inflation. And there was a lot of people who said the Fed will never be able to get the inflation under control. And inflation is still high, but it's not the way it was two or three years ago. But the Fed was committed to kind of getting it under control, and they took rates up really fast. And I think this was a good example that you don't have to have the dollar fall versus foreign currencies to still have inflation. In other words, you can have a rising dollar on a relative basis, but still have it lose purchasing power versus real things. And this was kind of the point I had tried to make with the milkshake to begin with. I never said that the dollar was going to go higher and everything else was going to collapse. I said the dollar would go higher, but the gold would go higher, that US equities would go higher, the US dollar assets would go higher. I thought bonds would fall because of the inflationary effects and because of the higher rates. And I think this is something that people need to understand is that when I talk about a strong dollar, I don't necessarily mean your purchasing power, what I mean versus foreign currencies. And that's actually very important. I think one of the most overlooked things when you're looking at investments or markets on a global basis is the relative level of fiat currencies. And those relative levels are extremely important. And especially if you don't live in the United States, it's easy to think it doesn't matter when you live in the United States. But if you live anywhere else in the world, you understand how important it is.