Japan had zombie companies - the corporate undead that were kept sentient during a decade of Japanese deflation with a diet of cheap money and the Japanese government's unwillingness to face the consequences of corporate failure. In Britain, we now have household zombies, says Fathom Consulting.
A think tank led by a former Bank of England economist, Fathom reckons millions of British households exist in a similar shadow world - propped up by a monetary policy which keeps mortgage interest payments at a manageable level.
One of the consequences of the drip feed of cheap money is that Britons have tended to carry on regardless, despite the financial crash and recession. The share of debt servicing as a proportion of disposable income has barely changed over the past two years. This is convenient for banks which have not suffered a catastrophic round of foreclosures and writeoffs for bad property loans.
But according to Fathom, that is the problem because the banks have still not recognized the scale of their real losses on home loans. The solution, says Fathom, is for the Treasury to bail out British householders by creating a bad bank for the entire nation's dud home loan exposure, the equivalent of a TARP for Wisteria Avenue. Only by recognizing the full scale of Britain's real estate loss will the banks be able to move on and begin to lend efficiently, says Fathom.
There is not a hope in hell of the Treasury doing this but the analysis is cute because there have been plenty of warnings about the exposure of homeowners to the risk of rising interest rates. The Council of Mortgage Lenders reckons that the interest bill would become unaffordable for 2.9 million mortgage holders if rates went up by 2 percentage points.
Small wonder then that the Bank of England has been giving signals about more quantitative easing (money printing). The Bank would have us believe that the loose monetary policy is about helping banks to lend to businesses. My suspicion is that the monetary expansion is really about propping up asset values. It is intended to ensure that there is enough funny money floating about to fund an offer to buy 15 Acacia Drive when the bailiff comes knocking on the door.
Unfortunately, as the Fathom research suggests, this is unlikely to work because the British household is barely in good enough shape to tread water much less buy a new home. Housing transaction volumes have collapsed and house prices are trending downwards. Meanwhile consumer price inflation is 3.1 per cent, a full percentage point above the Bank of England's target and higher than the benchmark 10-year gilt yield. The next movement for rates in Britain could be upwards, just as the Chancellor's austerity package begins to bite.