One of the most underrated aspects of this bull-market economy is the sharp drop in marginal tax rates on capital formation. After the levies on capital gains and dividends were reduced to a scant 15% in 2003, the supply of easy capital surged, holding down real interest rates and expanding internally generated liquidity. This, plus record profits, has been the major source of the new-liquidity generation that has fueled stock markets at home and abroad.
This is good noninflationary liquidity. It is not bad liquidity, such as occurred in the 1970s when the Federal Reserve and other central banks gunned the printing presses and created the excess money expansion that drove inflation and interest rates sky-high.
Friday, March 02, 2007
Larry Kudlow on the good news about the economy: