## Core Concept Every major modern economic crisis -- the Great Depression, 2008 -- was preceded by a collapse in private credit, not government deficits. The economy shifted from wage-powered growth to private debt-powered growth, and banks directed newly created money into existing assets (housing) rather than productive investment (factories, innovation). **Key Numbers**: - Pre-2008: US private debt surged to 170% of GDP; government debt was ~60% of GDP - Current: Private debt remains ~145% of GDP, still above all pre-2000 levels - The "real macro bomb" was always private debt, not public debt ## Why It Matters Mainstream economics treated banks as neutral intermediaries. Steve Keen's post-Keynesian analysis shows banks create money (not just redistribute it), and their lending decisions determine where growth occurs. When credit flows into asset speculation rather than productive capacity, the economy becomes structurally fragile. **The narrative swap**: "Work hard, get educated, and you'll be fine" masked the underlying shift from wages to debt as the engine of economic growth. Individual effort couldn't overcome a structural change in how the economy generates prosperity. ## Cross-Domain Connections - **Housing markets**: Bank-created money flowing to existing assets (houses) rather than new productive capacity explains persistent housing unaffordability - **Wage stagnation**: If growth is powered by debt rather than wages, wage growth becomes structurally decoupled from GDP growth - **Financial crisis prediction**: Private debt/GDP ratio as leading indicator, not government deficit levels ## Source *Source: [[The Quiet Wealth Transfer]] — Dr. Steve Keen (@profstevekeen), December 2025*