'Greed, Panic and Fear' After Japan Market Crash

Courtis said the market turmoil is a useful time for a reality check. Yes, the Japanese market is growing. But it is growing at an estimated 1.8 percent, not the 4 percent or 5 percent that some investors seemed to believe.

Yes, Japanese exports are soaring again. But Japan has become enormously dependent on growing demand from China and the United States.

"The United states generates about 35 percent of world growth," Courtis explained. "China, about 15 percent." If growth slows in those economies, it will seriously impact the Japanese economy.

Japan faces serious challenges in the years ahead, Courtis said.

"Japanese interest rates are not going to stay low forever. Because of its huge deficit. … The government is going to have to raise taxes and cut spending."

And then there's the population time bomb. "Last year for the first time, more people died in Japan then were born," Courtis said. The population has started to shrink. Unless the country can reverse course, there won't be enough young people working to support all those who have retired.

As for the current problems of Livedoor, Courtis said many small Japanese companies, good companies, would suffer from the fallout.

Livedoor's brash 33-year-old founder, Takafumi Horie, had become a role model for many younger Japanese.

Horie had once famously vowed to shake up the Japanese establishment, run by its "club of old men." To many, he represented a new, modern Japan in which young people with good ideas could thrive and show independence, instead of spending a lifetime working through the ranks of a single company. Livedoor's success also helped lure many investors back to the stock market.

But now, Livedoor is accused of cooking its books, and reporting enormous sales and profits in 2004 when it might have suffered big losses. And if this turns into a Japanese version of Enron or Worldcom, Japan's market could lose a lot of its luster again. It could also affect capital investment in Japan, which had finally helped the Japanese economy turn the corner.

Courtis said that the Japanese economy still had a ways to go and that the recent market turmoil didn't help.

"Japan represents only about 7 percent of global growth," he said. "If Japan were growing at a normal rate, it would be twice" that amount.

While the United States and China are doing a pretty good job driving global growth right now, Courtis said we would all benefit from a stronger Japan.

"It's better to have a neighbor who's rich and in good health, than one that is sick."

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