Political Economy (Canada and the Global Political Economy) Essay - 4

Political Economy (Canada and the Global Political Economy) - Essay Example evident that, had those lessons been adopted most of the negative effects of the Global financial crisis of 2007 and 2008 would have been avoided (Norton, 2010). The Bretton woods system set out in the 1940s was synonymous with fixed exchange rates. As time passed and growth was evident in many parts of the world, the system changed with market forces. The Bretton woods system encouraged growth in many countries of the world which and that encouraged expansions. On the same note, apart from Japan all other industrialized countries had a managed inflation rate, lower interest rates and improved per capita income, few years after setting up of the Bretton institutions (Norton, 2010). While addressing whether lesson learnt from Bretton Woods systems would have worked for the global crisis, it is important to note that crises are usually worsened by â€Å"contagion effect†. The down fall of the Lehman Brothers had a spiral effect. The most significant pointer to the collapse of the world economy during the global crisis of 2007/2008 was lapse in regulation. Most central banks were blamed for inapt leadership by failure to regulate despite the imminent economic imbalance. For example, the regulators failed in their role by allowing Lehman Brothers to go bankrupt. Due to that bankruptcy, many other lending institutions panicked and refused to lend and that encouraged contagion that helped to spread the crisis further (Chornyy, 2011). Like the 2007/2008 global crisis, the Bretton woods system had challenges but the difference is evident in the manner in which the challenges were handled. For example, the Bretton woods system faced liquidity problems since the dollar was the fulcrum of the entire system and the USA which was biggest player in that regard had challenges. The Bretton system also faced a problem of adjustment. This was because most of the member countries took a considerable length of time to pay their debts. The most significant contributor to the