The Deficit Myth: Modern Monetary Theory and the Birth of the People’s Economy

The Bretton Woods framework refers to the international monetary system established after World War II that made the US dollar the global reserve currency. Under this system, the US dollar was pegged to gold at $35 per ounce, while other currencies were pegged to the US dollar. The framework created several key international institutions, including the International Monetary Fund, the World Bank, and what would become the World Trade Organization. This system ended in 1971 when President Nixon suspended the dollar’s convertibility to gold, though the institutions it created continue to influence global economic policy. Suspending it meant countries would have to adopt a floating exchange rate system, as world currencies were no longer pegged to the US dollar; nevertheless the US dollar continues to be the dominant international currency for the foreseeable future.

Crowding out refers to the conventional economic theory that government deficits harm private investment by forcing the government to compete with private borrowers for a limited pool of savings. According to this theory, when the government runs deficits and borrows money, it reduces the supply of available funds in the market, driving up interest rates and making it more difficult for businesses to secure funding for their projects.