We will have to wait and see. But, I agree with you, monetary policy cannot cure corporate corruption. Proper and effective Government, however, can do so. That is why the jury may still be out given Nickoo's reasoning, and the views of others (including media commentators).
The entire arsenal of weapons in an economic war of recovery, comprise: 1) monetary policy; 2) fiscal policy; 3) legislative policy and guidance; and 4) good governance (ie: proper and effective market regulation).
To cure corporate corruption, one must rely on 3), and 4).
To the extent that corporate corruption affects the physical economy, one must also be prepared to resort to 1), and perhaps 2).
But, with real consumer spending rising by 2.6% in h1, all eyes will remain glued to the confidence debate. Any errors here and we could have the "Factor X" of 2002.
Conversely, with consumer spending holding up, and with the propensity for households to spend more out of real estate wealth than out of sharemarket wealth (estimated by Merrill Lynch, at 2x relative propensity), the recent declines in the US sharemarket have abated the rapidity of the economy's recovery curve (estimated GDP has been reduced across the board to an approximate 3 -3.5% range, compared to the previous 3.5 -4.0% range).
Even so, Merrill Lynch also observed on Friday that:
"(this) suggests that the pinch to consumer spending from this month’s stock market carnage will subtract no more than ½ percentage point from annualized GDP growth in the second half".
Going forward, none of us can foretell the future, although we can all devine the portents to the future. Similarly, history does not repeat itself as, on each and every subsequent occasion, there is always a so-called "Factor X" lurking out there, somewhere.
This year, the "Factor X" may well become the catchcry of corruption, and of what Governments and the regulators do about it. If nothing, we will decline. If something, we give the economy an even-handed chance.
But elsewhere, it could just be that another "Factor X" is emerging out there on the horizon, in the shape and form of Japan, and the near-Asian Tigers. More, however, on this in a later posting.
