When Enron fell, it closed its doors to employees and shareholders alike. It appears to be attempting to do the same thing to investigators, something that has to be arguably more disconcerting to investor confidence. Generally accepted accounting practices are one force to combat this, but the danger for firms attempting to disguise debt or hide financial information still remains. Right now it seems that corporations in the US are struggling with rising debt and falling profits, two incentives for "creative practices."  The Enron scandal has served to spread fears about corruption in accounting practice literally across the board. Even international corporations are feeling the pressure. Vivendi Universal, France's media giant, has put out several press releases about its accounting practices. Its attempts to smooth over stockholder worries about the company's financial position have not prevented its share price slide. But perhaps in even hotter water after Enron's fiasco is the already humbled financial sector of Japan.

     Critics charge that Japan's financial sector is one of the root causes for the country's decade long bout with recession and deflation. Long a scapegoat, with increased international scrutiny being placed on accounting practices, Japan's banks and institutions have been recently under attack from credit rating agencies.  Several key institutions, including the government itself, have seen their debt downgraded.  This in turn puts increased pressure on the financial sector.  It's obvious that Japan's financial system is in need of restructuring for structural reasons, but changes might help return confidence to the system.  At the same time, I find it amusing that the main group pushing the Japanese to reform their financial markets and their accounting practices has been the United States. If anything is to be learned from Enron then perhaps it would be that the US should look a little more closely within before being so quick to criticize others.

     All the while, the major question in the US today has become: If the economy is indeed recovering as the economics community seems to believe, what sort of recovery can we expect? Any recovery should be limited at best. As Enron hopefully revealed, US corporations are still riddled with debt, and with corporate profits falling, the financial markets are likely to remain weak (or overvalued).  Lack of confidence can hamper investment activity, hiring decisions, and consumption. For example, corporate executives have been repeating that growth will be limited. Although CEOs today are noted for their pessimism, it is ultimately management that makes the hiring decisions, and as such exert strong influence over real economic activity. 

    The Fed has been given a large amount of flexibility to conduct monetary policy as inflationary pressure has remained a non-factor. Even more, there doesn't appear to be much that will likely spark price growth either. The excess capacity is seriously eroding prices, thus keeping inflation low. The glut has been evident for a while, as capacity utilization rates have collapsed and the manufacturing sector has remained in deep recession.  That said, long-term interest rates appear to have stabilized, and cutting short-term rates any further may be excessive.  Optimists might argue that inventory correction, fiscal expansion, and low interest rates will help to cut the economy's excess capacity.  Though probably true, there are reasons to believe that a correction may not be in store for the short run. US corporations are likely to remain pressured at the bottom line by foreign competition. Excess capacity is a severe problem affecting Japan as well as many of the Asian tigers, forcing them to cut prices and try to sell abroad.  In our current slowdown, the economy is much more open then it has been in the past, and international factors will certainly play a larger role.  America may find that it simply can't buy its way out of a slowdown; the build-up of debt and financial excesses are real dangers. Recovery may happen, but it certainly isn't going to be easy.