As QE2 Sets Sail, Bond Rally Sinks - WSJ.com

THREE BIG DRIVERS OF THE ECONOMY: As QE2 Sets Sail, Bond Rally Sinks - WSJ.com

THREE BIG DRIVERS OF THE ECONOMY

Recall from the 1930's analysis the players:

(1) Monetarists - they blamed the ongoing recession on tight money (thus, Bernanke is trying to do what he can to make sure there is plenty of 'loose' money around).

(2) Keynesians - they said government needed to spend to boost demand (a policy dear to the heart of Obama and Democrats and unions).

(3) Laffer and the Laffer Curve - it says taxes have a roll to play and the continuing increases in tax rates in the 1930's, were a major negative to the income (i.e. reducing the return on investment and raising taxes on corporations and business people)

combined with the additional power given to unions to raise the cost of doing business with additional uncertainty.

TAKE from the above what you want to believe in.

Bernanke's efforts (1) would seem to show that a loose money supply policy on its own, even with strong Keynesian Spending (2) is unable to counter policies that go against the Laffer Curve (3).

However, those like Obama who don't believe in Laffer continue to hope that Bernanke (1) can overcome any drag caused by high debt and high tax policies.

Yes, it is true that taxes have yet to be raised (although Obama is trying right now as part of the Debt limit talks); but, the corporate tax rate is clearly acknowledged even by some Keynesians like Obama to maybe need lowering.

Just know that if the Laffer Curve is right, it may not be the central bankers - certainly alone - that need to be worried about - its those who support big government and big government spending (read Obama and most European unions).

And also, it's not the central bankers who are really responsible as much as those who thought there was a 'free lunch' - in housing, entitlements, etc.