If the road to Hell is paved with good intentions, in economic terms the paving is done by zombies. We’ve all heard of the convention regarding Japanification. In desperation trying to avoid a worse fate, many of Japan’s tortured financial institutions were left open and operating so as to not force losses too much at a time. Rather than allow for recovery, these zombie banks locked Japan’s economy into its so-called deflationary mindset from which it has yet to escape almost three decades later.
Zombie banks were not the only undead firms in Japan’s lasting fall. These eventually gave way to a proliferation of zombie firms, largely industrial, who made up the vast majority of that country’s NPL problem lingering well into the 21st century. Firms that creative destruction would have destroyed long ago were purposefully propped up often on official approval simply because central bankers fear 1929 as if that is the only route to long-lasting depression.