In April 2007, New Century Financial Corporation filed for what was then a little noticed bankruptcy protection. Their mortgage-backed securities had become worthless and by summer Bear Stearns began liquidating hedge funds. Come autumn, Britain’s fifth largest mortgage lender Northern Rock was on the ropes propped up by the Bank of England. The rest is well known history.
Five years on, after bank failures and bailouts, foreclosures, and rising unemployment, the crisis that started as an obscure financial scheme has led to an unusual triple failure in all three of the world’s traditional growth engines, the United States, Europe and Japan. Though boom-bust cycles are nothing new, they tended to peak and trough at different times. Germany’s early 20th century malaise was paired with America’s roaring twenties. Japan’s first lost decade of the 1990’s coincided with a western tech-driven high.
Now, industrialized nations are facing their greatest economic threat in nearly a century – a troubled middle class losing its purchasing power to drive world growth. If current trends aren’t reversed, and soon, 2012 may be the year the middle fails and a century of economic modernization grinds to a halt.
Full article on The Diplomat website.