Even Google Inc. (NASDAQ: GOOG) is feeling the economic pinch. Actually, what started as a pinch has turned into a train wreck, and now even the world's largest web search provider will be slowing hiring and turning down the heat on possible acquisitions. Google CEO Eric Schmidt told Bloomberg Television that advertising budgets are "under stress." I'd say that's an understatement.

In all likelihood, this will be Google's toughest test in its 10-year history. Its entire business revolves around advertising income. Although the company does it better than anyone -- and new media advertising is finally becoming mainstream -- the company's exposure to an ongoing slowdown could be cause for concern. Although the company may "do no evil," it will certainly have some profit evil creeping up on its results in some form soon.

Schmidt added that, "All of us are vulnerable . . . it's a race between a contraction in advertising, which would affect everybody, and a very positive shift from offline to online.'' The question is this: can Google take more of the dollars that are shifting to online advertising faster than the overall contraction in advertising spending over the next year or so (or longer)? Given Google's history, it will almost certainly continue to be successful, but it's hard to see the company taking such huge chunks of market share that the advertising slowdown won't chip away at its results.

The New York Times reports that Japan's decade-long economic slump following the bursting of its 1980s economic bubble offers important lessons for the U.S. Of these, the most important one seems to be that banks and others exposed to bad loans should write them off fast and move on. It was Japan's unwillingness to bite the bullet that kept it stuck for a decade.

Last month, I compared Japan's negative interest rates to the ones we have now. But what caused the predicament that led Japan to cut its rates so much? In Japan, housing prices in the major metropolitan regions nearly tripled from 1985 to 1991, then proceeded to lose two-thirds of their value over the next 14 years. In the U.S., the price run up was less extreme: house prices rose 82% from November 2001 to their peak in June 2006. Since the peak, house prices have fallen 10% with 10% to 15% further to go.

Japan was slow to write-down its bad loans. That's because its industrial groups, or keiretsu, had tight links with banks, so when a bank got in trouble it was often quietly bailed out temporarily with loans or investments from other members of the corporate group. In the U.S., banks are quicker to take write-downs and so far we've used Sovereign Wealth Funds (SWFs) to recapitalize the banks.

The lesson we should learn from Japan is that the sooner we face reality, the sooner we can solve our problems and move on to the next period of growth. A larger question is whether we can grow without creating another bubble.

Peter Cohan is President of Peter S. Cohan & Associates. He also teaches management at Babson College and edits The Cohan Letter.