February 2021

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Anybody wishing to deny the existence of asset bubbles needs to explain how and why we have seen premia as high as 100% on closed-end funds where one can buy and sell the assets in the fund, with those premia suddenly collapsing at certain points in time. I note that normally most closed-end funds where the underlying assets are freely bought and sold have net asset values of a single digit discount, as tax and management fees tend to justify a fund value below the net value of the underlying assets. The only way one can justify a premium for a closed end fund of freely tradeable assets is if one expects the value of the fund to rise in the near future, that is, if one is in the middle of a speculative bubble.

I have mentioned before that I think the ABCT provides the skeletal structure for the business cycle while the other theories flesh out the details. In other words, the other theories are not causes of crises but descriptions of them.

BTW, check out Hayek's review of contemporary theories in his "Monetary Theory and the Trade Cycle." It was written in the 20's but seems very modern. Not much has changed. rdmckinney.blogspot.com

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