--- title: "APN Deconstruction Ep. 11: The Housing Trap and the Money Myth" url: https://australianproperty.network/media/podcasts-media/deconstruction/apn-deconstruction-ep-11-the-housing-trap-and-the-money-myth/ date: 2026-02-05 modified: 2026-02-06 author: "Deconstruction" description: "Steve Keen argues modern economics is broken. We deconstruct how banks create money out of thin air and how this \"money myth\" turned the Australian housing market into a debt trap." categories: - "Deconstruction" tags: - "APN Deconstruction™" - "Australian Property" - "Banking" - "Capital" - "Deregulation" - "Economics" - "Housing Market" - "Inflation" - "money creation" - "Private Debt" - "Ravel" - "Steve Keen" - "wealth" - "Wörgl" image: https://australianproperty.network/wp-content/uploads/2025/07/APN-Deconstruction-Feature-Image.webp word_count: 912 --- # APN Deconstruction Ep. 11: The Housing Trap and the Money Myth In this episode of **APN Deconstruction**, we explore the provocative arguments of Australian economist Steve Keen, who asserts that **modern economics has** **devolved from a science into an ideology**, one that fundamentally misunderstands money, production, and the root causes of our housing crisis. #### The "Garbage" Ideology The central thesis presented is that mainstream economics, specifically the models taught in universities and used by central banks, is "garbage" because it is detached from reality. Keen argues that, unlike engineers, whose bridges collapse if their calculations are wrong, economists have **no skin in the game**. When economists fail to predict a catastrophe like the 2008 financial crisis, they do not lose their jobs or tenure; consequently, they never fix their broken models. The core error lies in the obsession with **equilibrium**, the idea that the economy is a pendulum always returning to a calm centre. Keen argues the economy is actually a chaotic, evolutionary system, more akin to a weather system or a rainforest than a machine. #### The Myth of Production: Hungry Helen vs. Real Factories A major flaw in economic textbooks is the theory of rising costs. Students are taught the story of "Hungry Helen" (or similar fables), where a kitchen becomes too crowded with workers, causing productivity to drop and costs to rise. This is used to justify raising interest rates to slow down the economy. However, empirical research into real factories reveals the opposite. Real businesses do not operate like a slapstick comedy; they are designed with **excess capacity**, typically running at 70% to 80% utilisation. If a company like Tesla receives a surge in orders, they do not trip over each other; they activate idle machinery, causing their cost per unit to *fall*, not rise. Because mainstream economists assume costs must rise, they hit the economic brakes when they should be hitting the accelerator. #### How Money is Actually Created Perhaps the most damaging myth is the "loanable funds" model, the intuitive belief that banks are merely middlemen who lend Grandma’s savings to home buyers. Keen’s software, *Ravel*, demonstrates that this is a fairy tale: banks do not lend existing money; they **originate it**,. When a bank approves an $800,000 mortgage, they do not check the vault; they simply type the numbers into a borrower's account. In that moment, a loan is created (asset) and a deposit is created (liability) simultaneously. Therefore, the amount of money in the economy is largely controlled by private banks and their willingness to create debt, not solely by the government printing press. #### The Government Deficit "Seesaw" This understanding of money creation leads to a radical rethinking of government debt. Keen uses a **seesaw analogy**: accounting is a zero-sum game. For the private sector (us) to have a surplus (savings), the government must run a deficit. If the government taxes more than it spends (running a surplus), it is effectively deleting money from private bank accounts. Consequently, **private savings are effectively the government’s debt**. If the government refuses to create money via deficits, the private sector is forced to rely on bank debt to grow, which is the volatile fuel that leads to financial crashes. #### The Housing Trap The explosion of private debt is most visible in the housing market, a phenomenon Keen traces back to financial deregulation around 1982. Before the 1980s, lending was limited by the savings held in building societies. Once commercial banks were "let off the leash," they began creating vast amounts of credit to lend against housing. The problem is one of physical reality versus financial infinity. While banks can create infinite credit, we cannot create more land in desirable locations like inner-city Sydney or London. When a "wall of money" crashes into a fixed supply of assets, prices skyrocket. The crisis is not just a supply issue; it is a result of the **financialisation of shelter**, where the cost of entry becomes a lifetime of debt. #### Inflation, Conflict, and Solutions Contrary to the belief that "printing money" automatically turns a country into Zimbabwe or Venezuela, Keen argues that inflation is primarily driven by **supply shocks and social conflict**. For example, if oil prices double, workers demand higher wages to cope, and corporations raise prices to protect profits, leading to a tug-of-war over the economic pie. To solve these stagnation issues, Keen points to two divergent examples: - **The Soviet "Cossack" Model:** Due to resource constraints, the Soviets stopped innovating, producing the same 1942 BMW replica for decades. - **The China Model:** China uses the state to fund massive infrastructure (high-speed rail, grids) regardless of the deficit, while unleashing "cutthroat capitalism" on top of that platform. This hybrid approach avoids the "money myth" trap. Finally, Keen references the radical experiment of **Wörgl, Austria (1932)**. To combat the Great Depression, the town issued a local currency that "rotted" (lost value) if it wasn't spent. This forced money to be a medium of exchange rather than a store of wealth. The velocity of money exploded, unemployment vanished, and the town paved its streets, proving that we are limited by real resources, not by numbers in a spreadsheet. #### Summary Takeaways - **Money is a Ledger:** It is not a scarce commodity like gold; it is a promise and a social record. - **Deregulation Broke Housing:** The housing crisis is a direct result of allowing banks to print money against existing assets. - **Deficits Create Savings:** We should not fear government deficits, as they represent the net savings of the private sector. You can view the original interview on [YouTube](https://youtu.be/6LPpih9-hwE?si=4M3YmT1G9TX4yvH4).