The ‘Imperial Dollar Milkshake Circle’

Turns out that the Milkshake theory is a more colorful and up-to-date version of George Soros’ 1984 Imperial Circle . The core of both arguments is that the US economy is getting smaller relative to the Rest of the World, while the World’s use of US dollars as the international standard of value continues to get bigger and bigger. This creates a po

In the event, G5 policy makers met to forestall a crisis and hammered out the 1985 Plaza Accord , designed to bring down the runaway dollar. It worked! Some would argue too well, because the subsequent 1987 Louvre Accord was forced through to brake the skidding dollar.

The budget deficit stimulates the economy. Without it, the recovery could not have been as fast and vigorous as it turned out to be. The recovery, combined with high interest rates and the influx of foreign capital, tends to keep the dollar strong. The recovery, combined with a high exchange rate, tends to suck in imports and create a trade defici