There was a great article in yesterday's issue of the Asian Wall Street Journal about Japan.
It mentioned among other things, that they have been unable (largely for cultural reasons)to "bite the bullet" and restructure their economy when the speculative bubble became apparent 7 or 8 years ago.
Instead, they have seen promoting growth in SE Asia, combined with use of cheap labor, as a way to not restructure at home.
In the process, they have invested hundreds of billions in SE Asia, and have been largely responsible for the miracle in those economies .
These investments have become ever larger, but in a context of very weak banking and lending practices, real estate inflation, overall low margins, and corruption.
When Thailand failed, the dominoes started falling.
There is now huge overcapacity in Asia, with plants working on razor thin margins or loosing money, and deeply dependent on the European and US market.
The situation has become even more critical as consumption is now falling in Japan itself, and the subsidiaries of Japanese goups in the tiger economies are starting to produce red ink.
We truly are in a deflationary situation. Look at commodities prices, or look at prices and incentives given for new cars in the US.
The problem will be resolved one way or another, but given its magnitude, hoping that there will be no pain for the US and European economies is wishful thinking.
This is not a correction, it is a bear market, and will last until the global banking mess created by Japan is cleaned up.
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