The U.S. and China are in a Bugs Bunny situation.

You've seen it. Two characters are falling through the air, but they are still fighting over which one will hit the gruond first, Galileo be damned.

In the cartoon, one character "wins" (always the protagonist) and the other goes splat.

In real life, it doesn't matter much which one reaches the bottom first. They're both going down.

The U.S. and China are the cartoon characters, the fall is history's greatest ponzi scheme. The U.S. imports goods and exports debt, while China imports debt and exports goods. Both sides pretend to be growing, and that growth is used to prop up corrupt regimes. In fact the U.S. debts can't be paid without destroying the currency, and the Chinese government is still losing the race against its own people.

I reflected on all this today on reading an AP story on China's new "Internet controls." The story stated "The government says there were 74,000 major protests last year nationwide." Most were over corruption, the seizing of private land (Chinese peasants don't like Kelo either), and pollution.

These protests are happening, and growing, despite an increasingly-restrictive Internet censorship regime. But the logic of that regime is self-defeating. You can't control thoughts. You certainly can't both control thought and increase prosperity. Not for long.

At the present time, China remains stable because the growing urban middle class is trading wealth for freedom. But middle class people, regardless of where they live, know how to get around blocks to freedom. They use euphemisms, they approach banned subjects indirectly, they create (and discard) code words. (Your kids do this, too.)

This game won't continue indefitinely. At some point the protests from the countryside cause unrest in the cities, and the choice between prosperity and liberty becomes no choice at all.

Now, will this happen before or after the U.S. finds it can no longer pay for its imports, even using inflated currency? Will this happen before or after U.S. consumers rein-in their spending and China finds a limit to its exports?

Does it matter?

Only in cartoons. In real life, two people fall from the sky and they both die. As with people, so with natons. And in this case, death takes the role of economic collapse.

I am currently reading Robert Prechter's Conquer the Crash and will have a lot more to say about it when I'm finished. But the question is no longer, will the crash happen. The question is when will it happen, and what will happen afterward?

You have been warned.