Debunking Economics - the podcast

In this episode, Prof Steve Keen and host Phil explore the complexities of hedging, its applications, pitfalls, and its impact on markets and the economy.
Hedging, rife in the financial and commercial world, is designed to protect our investments. If prices of our investments go down, or the cost of our business inputs go up, hedging is the insurance that stops things getting too bad. But does it work? Steve argues it doesn’t work when there’s financial crisis - when all prices go the same way. The example is people who have bought gold to hedge against equity investments, if they are forced to sell leveraged shares, they might recover their position by selling the gold, forcing that down in price too. Phil also asks whether hedging creates a distortionary impact. For example, stable companies might see higher share prices because they are seen as safe, rather than having any growth potential.
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The UK Prime Minister Andy Burnham has said he wants government departments to focus on buying British, The UK state spends roughly £300bn to £400bn a year on public procurement—and currently treats it merely as a bureaucratic exercise to secure the absolute cheapest upfront contract, rather than using it as an economic driver. Steve says it’s a step in the right direction, but Phl asks what is it that Britain makes that the government would want to buy? And how long before the usual argument that its costing more and who’s going to pay for it? Hosted on Acast. See acast.com/privacy for more information.

Unless you are one of the tech bros, it is difficult for anyone to push on with innovative ideas, probably why the world seems reliant on the US for the next big thing. If you not running a Megacap getting money for a new idea is virtually impossible, particularly in the early stages. Even government schemes are focused on reducing risk, to the pint that they offer little more than is available from the commercial finance sector. Steve says China has a better idea, but for those countries that don’t want such centralised economy is there a way to fund start-ups that uses a mix of private funding and government assistance. Phil and Steve both have ideas on this. Hosted on Acast. See acast.com/privacy for more information.

There’s only one reason a government issues bonds. It’s so their account with the central bank is not overdrawn. It’s only regulation that stops the central bank from saying a rapidly expanding deficit is fine. After all, it’s an indicator of how much government money has gone into supporting the private sector. But economists and finances see that as monetising finanacing, and it’s a no no. Instead, regulations insist bonds are issued to the value of the government’s spending deficit. But what purpose do they serve, other than allowing investors to influence their price and yield, often as a response to government spending. In short, they seem to think their market pricing can influence government policy. So, why do we pay so much attention to an artificial process that only happen because we can’t trust governments to regulate their spending and keep inflation in check. Hosted on Acast. See acast.com/privacy for more information.

A listener (Doug) left a comment on YouTube saying I assume Phil intends to play "devil's advocate" when he speaks as though taxes are necessary for money issuance by governments with sovereign currencies. He’s worried that it might confuse new listeners to the podcast. So this week, Phil and Steve get stuck into the more contentious side of MMT – how government spending creates money, and bond issuance has limited impact on that. It depends on who is buying them. They discuss how government spending differs from household spending funded by a bank loan. Consider it a catch-up for new listeners and viewers. Hosted on Acast. See acast.com/privacy for more information.