Macroeconomics Case Study

US Financial Crisis: Is It the Moment for Bretton Woods II?

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Abstract: The case ismeant to invoke the reason and the origin behind the BrettonWoods systemto provoke a debate as regards its proposed rerun in the context of theUS Financial Crisis (2008), which has begun to engulf the whole of the globalised world and, therefore, cries out for a synchronised global response.Whether the requisite response should come from a Bretton Woods-style concord of yesteryears or from a reformatted BrettonWoods system and, whether there is any scope for the BrettonWoods IImoment as such can all be known and argued upon as the case unfolds itself to the readers. The case captures the working of gold standard, floating exchange rate, adjustable pegged BrettonWoods system, post-BrettonWoods informal system, theUS housing bubble and burst, the credit crunch and finally the financial crisis spilling all over the globe.

Pedagogical Objectives:

• To understand the reasons for the origin of the Bretton Woods System and other international institutions like IMF andWorld Bank
• To analyse the factors leading to the demise of the BrettonWoods System
• To understand the connection between the post-Bretton Woods Informal System and the US Housing Boom
• To debate over the revival of the BrettonWoods System.

Keywords : US Financial crisis of 2008, Housing Bubble, Subprime Crisis, MBS, Financial Derivatives, Credit Crisis Indicators, Bailout, Deficit Financing, Liquidity Trap, Money Illusion Monetary Policy, Fiscal Policy, Deficit Financing, Paradox of Thrift, Multiplier