November 08, 2010

Our worry now is that we are effectively reversing the trends of the last 25 years. The QE and QEII signal the dismantling of the price rule. In addition, if the Obama Administration has its way, it will increase tax rates and regulation, reversing the secular trend in effective marginal tax rates that began with the Reagan/Volcker policy mix. If the QE/Obama policy mix rule the day, we will retrace the secular trend of relative performance and the real exchange rate will initially decline and rebound, hence the V instead of an inverted V cycle.

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