Carney cannot make this point on the record because he is supposed to be apolitical. REUTERS/Kirsty Wigglesworth/Pool

British people are saving less of their money now than they did in the financial crisis of 2008.

Consumer debt is very high. UK consumers owe a lot of money

There is no wage inflation.

This is what a credit bubble looks like, and Bank of England Governor Mark Carney knows he must deflate it, somehow.

The obvious solution is to raise the minimum wage substantially.

That would make the cost of investing in work higher, forcing a reallocation of capital away from marginal businesses that only exist because wage levels are low. Investment would flow toward businesses whose profits are substantial enough to withstand wage increases.

The resulting wage inflation will require BOE to raise interest rates.

Thus the bubble ends.

LONDON — Last week, the Bank of England decided to keep the benchmark UK interest rate at 0.25%. It has been near zero for years. This cannot last forever.

BOE Governor Mark Carney knows this. He knows that as long as interest stays near zero, the chances grow stronger that he is inflating a calamitous debt bubble inside the UK economy.

And if that bubble pops, the British are in no position to deal with the consequences. They are carrying too much debt and they've stopped saving money. In other words, when the downturn comes, they've got nothing to cushion the blow.

Two charts from HSBC analyst Liz Martins tell the tale. The UK savings rate is near zero but the debt people are carrying has reached a peak:

(Charts annotated by BI.) HSBC

As this chart from Societe Generale analyst Albert Edwards shows, low savings rates are loosely correlated with impending recessions. When consumers become fearful of the future they pull back on their spending, creating the very recession they don't want. The scary thing about this chart is how far below the 2008 crisis the current savings rate has fallen:

We don't know how dangerous all that debt is.

Or where the most dangerous debt is located.

The usual suspect is the housing market, but that has moderated recently — an increase in the "stamp duty" tax on house sales and buy-to-let mortgages has reduced the number of people who buy property as an investment rather than a place to live.

More recently, the BOE has become concerned that UK car finance has become unsustainable. Personal contract purchases — a type of rent-to-buy agreement — allow drivers to own cars while paying less than the total price of the car at the beginning of the contract. And that is creating a supply of high-quality used vehicles which is greater than the entire aggregate demand for new cars in Britain in some years.

What has been the response of the finance sector? To bundle all those car loans together and sell them as asset-backed securities.

As Morgan Stanley analyst Harald Hendrikse told Business Insider recently, "The mechanics of the situation are exactly the same" as the mortgage crisis. "We are repeating exactly the same problems in the US and the UK specifically that happened with the mortgage market in 2007," he said.

All of Britain, downgraded

If this is beginning to sound familiar, that's because it is.

That's why Moody's downgraded its outlook on almost all types of UK consumer debt last week, in part on the basis of this chart:

Carney knows all this.

His problem is that the economy is too feeble to withstand the rise in the interest rate required to deflate the bubble before it pops uncontrollably.

Only when the economy is growing so fast that wages start rising will he be able to increase rates.

The obvious solution is to raise the minimum wage substantially.

The obvious solution is to raise the minimum wage substantially. Carney cannot say this on the record because his position as a central banker is supposed to be apolitical.

Carney cannot say this on the record because his position as a central banker is supposed to be apolitical. And even if he could say it, he would still need the government to act — a big "if" under Prime Minister Theresa May. But it would be the quickest, easiest, tax-free way of rebalancing the economy and juicing productivity. (Low productivity is the other handicap that keeps the UK economy fragile.)

When interest is low, capital gets lazy

Raising wages would make the cost of investing in work higher, forcing a reallocation of capital away from crappy businesses that only exist because wage levels are low, and toward businesses whose returns are substantial enough to withstand wage increases.

When interest is low, capital gets lazy: Any investment that returns greater than zero starts to look good. So money flows into marginal schemes. That "feels" good initially because money becomes easy to get, especially for people with B, C and D-level ideas. That's a problem because it means money is sucked away from the A-grade ideas that really ought to get the funding. And even if it is not, those A-grade companies find themselves competing with a bunch of second-rung companies who are creating a lot of noise in the market even though their long-term models just don't work.

London is currently being served food delivery by Deliveroo, Eat 24, Jinn, Uber Eats, Just Eat, Feast, Hungryhouse, and Etefy, to name a few. These companies are all good enough to get investment funding. But are they all good enough to survive in the long run?

(This is why London is currently being served food delivery by Deliveroo, Eat 24, Jinn, Uber Eats, Just Eat, Feast, Hungryhouse, and Etefy, to name a few. These companies are all good enough to get investment funding. But are they all good enough to survive in the long run?)

Higher wages — especially minimum wages — are thus a good test of which companies can actually grow and make money, and which are simply floating on easy credit.

And with workers earning more money, they have more chance of paying off some of that debt and boosting their savings without crashing the economy.

Uber is like an app for lowering wages

Normally, you'd expect wages to have started rising already. Technically, we have full employment. Workers should have bargaining power. But wages have not risen. In fact, in real terms (after you take out inflation) they have declined. Brits are getting poorer. One reason for this is that the UK has been importing deflation in the form of cheap goods and services from other countries, and through digital businesses that make the cost of everything so much cheaper. The existence of Uber, for instance, is likely reducing the demand for new cars. That would be fine if Uber was also was also creating jobs that paid as well as automotive factory jobs. But it isn't. Nobody gets rich driving for Uber.

The government has one big, blunt instrument to wield in this fight: It can boost the minimum wage.

The resulting wage inflation will require BOE to raise the interest rate.

And that is Carney's best hope of deflating the bubble he worries he is creating, while at the same time rescuing the economy from a sudden pullback in consumer confidence.