I agree with your economic prognosis in the sense that East Asian integration is clearly happening at a faster rate that before and that the US is increasingly less important (although it's still the first or second largest trading partner for most countries, so it's important to keep in mind that our decrease in power is relative) compared to how things used to be, but I disagree with your analysis of the non-economic factors that would be involved in a China-Japan rapprochement.

China is not a democracy, and while Japan is a "democracy", the government is quite independent of the voters. Heaven help Japan if China ever becomes a democracy - but at the moment both governments can ignore nationalist sentiment whenever it pleases them.

While China is not a democracy, the CCP leadership has been facing a serious legitimacy crisis since the end of the Cultural Revolution. Communism no longer serves as a legitimizing mythology, so since Deng's ascendancy in the early 1980s the party has relied on three strategies to keep itself in power. #1 - it has pursued a bread and butter growth strategy under the assumption that if people continue to see their individual lot get better they won't be motivated to resist or revolt. #2 - it has situated itself as the only institution capable of maintaining order in China. The Chinese share a general fear of anarchy - so if the party is the only possible source of order, people are less likely to try to overthrow it (since there is no obvious replacement). #3 - the party has positioned itself as the champion of China's national glory (hence the CCP's aggressive courting of the Olympics and continual threats against Taiwanese independence).

The tricky thing for the party is that all of these legitimating arguments are based on performance - the party has to maintain order, maintain growth, and maintain national glory. The process of opening and economic reform that Deng initiated in the 1980s has led to a major decrease in the capability of the Chinese police state - as has the explosion in information technologies like cell phones and the internet. This has put the CCP in a situation where it can't cover up problems as easily as it once could, making it much more susceptible to public pressure. The CCP leadership is very aware of the public mood (they often conduct opinion polls and engage in more informal methods of gaging public sentiment as well).

This is why the CCP has pursued very hard-line actions against Taiwanese independence (even when they seem to fly in the face of what would be good for the CCP elites), and why they allowed violent street demonstrations against the US after the bombing of the Chinese embassy in Sarajevo, and after the spy plane crash incident. These things weren't done to send a message to the US - the CCP leadership was actually much more interested in courting US good will at that time (due to China's pending WTO membership bid). The CCP felt pressured to make nationalist responses because the public was agitating for them. There has been a dramatic rise in public protest against the CCP in the last decade. Most of the protests are localized and against regional governmental corruption, rather than against Beijing, but Beijing's biggest fear is that those regional movements will at some point coalesce into a general uprising. That is why maintaining the three factors I mentioned above (growth, stability,and national pride) is so important to the CCP - and why they cannot, as you argue, simply ignore nationalist sentiment whenever they feel like it. Ironically, I think that the more-democratic Japanese government is probably much more capable of doing so than the Chinese are right now.

That is why I do not think that a China-Japan alliance is in the works anytime soon. The Japanese are aware of this problem and are afraid of Chinese instability. Japanese firms have recently been pursuing a "China+1" strategy - build a plant in China, and build a backup plant in Thailand or Malaysia. The combination of historic distrust, potential Chinese instability (which, if it come will likely have a nationalist character to it), and the long-standing US-Japan alliance will keep Japan in the US camp past the time where it would be "rational" for the Japanese to give up on us. That said, I do think that over the next few decades the US-Japan alliance will dissolve into more normal state-to-state relations, but I do not believe that it will happen as fast as you argue it will, even in the face of a US economic collapse.

The first step will be to peg to each other's currency, in a basket of East Asian currencies. Trade inside East Asia is the most important part of their exports. With the growth of the market inside China, Japan will increasingly turn away from the US

As I said above, I just don't think Japan desires to have all its eggs in one basket - why would it switch from dependence on one market (which failed it, if your predictions come true) to dependence on another market that could also quickly fail it? Additionally, the Japanese can be very chauvinistic. Japanese interactions with East Asia have been consistently damaged due to (somewhat accurate) feelings that the Japanese think they're better than everyone else and should be in charge of the place. Unless I'm misreading you, it seems that the arrangement you are proposing would place Japan in an almost second-tier relationship with China as the regional power. I simply do not think that either the Japanese public (or even the Japanese elites) would stand for that. They might be okay with an arrangement that has Japan and China as equal partners (as long as Japan could be portrayed as 1st among equals), but a China-led alliance seems pretty unlikely.

Ce n'est pas une pipe. C'est une signature.

There has been a dramatic rise in public protest against the CCP in the last decade. Most of the protests are localized and against regional governmental corruption, rather than against Beijing, but Beijing's biggest fear is that those regional movements will at some point coalesce into a general uprising.
Exactly - these protests are against local corruption. How does ignoring nationalist sentiment connect with local corruption?

Maintaining national honor is not a problem for the CCP. China will be the biggest economy in the world. This is natural, because it has the biggest population, several times larger than the US. Monetary cooperation with Japan is not going to threaten its self image. The government may use nationalist sentiment when convenient - but it is not tied to using it when it is inconvenient.

It is the Japanese government that has been pandering to nationalist feelings - Koizumi built a large part of his reputation on being a "new style" of leader. One who stands up and says what is what. The visits to Yasukuni shrine were part of that "tough leader" image. In Japan, with a deficit of good examples of responsible leadership, such posing is mistaken for strong leadership.
But that movement was just about Koizumi - I don't think that Abe will continue to make such open public visits. He has a different media image and leadership style.

Japan has been America's lapdog for a long time, and it would be easy to turn the public's sentiment against the alliance with America whenever the government chooses to do so. An alliance with China would be very easy to portray as one where Japan is on the top. After all, Japanese have been pretending that they are living in a real democracy for 50 years. That difference between reality and public appearance isn't a problem.

But this need not be a big political alliance. The two countries link their currencies together without big public announcements. The Chinese public would never realise, and neither would most Japanese. Why would the governments have to make a big thing of it and face this nationalist sentiment that you think is a big problem.

Finally - China and the political solution.

I've been in China for just over a year - I've talked politics with people, never hid my interest in politics, but I haven't gone out of my way to specifically talk about democracy. And, you know, only 1 person has specifically talked to me about democracy in China. And they were a quite highly placed in the police - not exactly somebody fomenting revolution.

People here clearly are not happy with the corruption in China, but it doesn't appear to be linked into a desire to change the government. Perhaps 20 or 30 years ago the two would be linked together, but now I'm not so sure.

The biggest challenge facing the Chinese government is not protests or nationalism or the economy - it is reducing corruption. If that is achieved, I suspect that the CCP will be around for a long long time. If not, then I'll certainly not be sticking around when it all crashes and burns.

The biggest challenge facing the Chinese government is not protests or nationalism or the economy - it is reducing corruption.

Well, in this sense we agree...I just don't think it's something that (given their current political system) is possible for them to deal with, so I push the "problems" to the next level (i.e. protests, legitimacy). No autocratic state has yet been able to square the circle and combine a successful market economy with effective governance. I don't believe China will break that mold...but we'll see what happens, I suppose.

Ce n'est pas une pipe. C'est une signature.

no autocratic state has yet been able to square the circle and combine a successful market economy with effective governance.

And before I come off as sounding too naive - I'm not arguing that the market transition will inevitably lead to democracy in China and a happy ending. I just don't think (from what I've read) that the CCP can maintain the track it's on indefinitely. At some point the growth will slow, people will get unhappy, and they'll blame it on Beijing. At that point, China's in trouble. I sincerely hope it never comes to that, because I think the results will be positively tragic, but I think that it's practically inevitable. It might be five years, ten years, or even fifty years down the road, but as long as the CCP continues to govern China as a (increasingly weakened and ineffective) Leninist state, a crisis is bound to happen at some point - and once the instrumental arguments the CCP is making to maintain its legitimacy no longer hold true, they're in for a world of hurt.

Ce n'est pas une pipe. C'est une signature.

It seems that you have returned again to the issue of economic growth, instead of combating corruption. I don't think that they are the same thing.

The central government controls news reports about protests and demonstrations, but it doesn't control news reports on corruption. It is corrupt local officials and influential businessmen who lean on news agencies in cases of corruption, pollution, industrial accidents, etc.

Yet, the many TV channels in China are filling up with dramas about ordinary everyday social problems - such as corruption. It is an openly acknowledge and talked about problem, unlike the problem of the suppression of political dissent. In many ways this is an open country, as long as you aren't pushy in talking about democracy.

I don't see the CCP becoming an increasingly weak Leninist state, although I don't see much open involvement of the central government in everyday life. My perspective from here isn't ideal for those observations.

As we're hideously off-topic here, I'll pull us back:
If the US economy crashes and burns in the next couple of years, while the CCP reduces corruption, I'll predict that any chance of democracy in China (similar to the US) will be crushed. Regardless of any future change in the economic fortunes of China. We won't see a USSR-style collapse in China, I think. I hope.

Are those people being paid a higher salary now, 3 years later, which will help them pay back the money they borrowed? If they aren't being paid a higher salary, but they will have no problem refinancing, why did they need to take the money out of their house in the first place?

You make a valid point, however what you have built is a case for reduction in consumer spending, not collapse in the housing market. Much like maslov's theory of needs, consumers will stop spending -first-, then find themselves unable to meet the mortgage payment despite that. No one loses their house in foreclosure while continuing to buy a big screen TV down at WalMart. The sharp fall off in consumer sales which would be the leading indicator for any housing collapse is simply not there.

Sometime this money has to be paid back - after all US consumers are not the US government - they can't print more money to pay their creditors.

Yes people are spending beyond their means. Yes they are racking up credit card debt, but honestly..with the dollar in free fall exchanging hard goods for cash is not the absolute folly that it used to be.  I for one plan to do a lot of shopping before I bail for European shores.

Much of that demand has been based upon the assumption that debt could be paid back with more increases in house prices. Why shouldn't house prices drop 20% or even 30% back to average increases of the '75 to '95 period? When the bubble bursts, what will keep the house prices up there?

Because housing is not a liquid market. People won't sell their homes at a loss because A) for most people when they sell a home, they need to buy  a new one and B) the marginal cost of staying in their home (sitting pat) while it declines in  sales value is minimal since the price of their home only matters when they try to sell/cash out equity.

The housing bubble is connected in with the increase in consumer spending. They will both fall together, and bring the US economy into recession. It is still early days yet....

Agreed. But consumer spending will fall first..and despite WalMart's Thanksgiving numbers, we haven't seen any significant fall off.

. It takes time for factories to be (re)built and workers trained. But the USA does have an advantage on infrastructure and stability that many 3rd world countries don't. 5 to 10 years time, US industry will be on the up.

The people who are running major multinationals are not rubes. Toyota, Honda and other major heavy industry players began building out factories -here in America- as early as 2001. With our switch to an information economy, outsourced jobs can switch back here just as easily as they were sent overseas.

But until the dollar hits bottom, along with the economy, I'd still keep my money out of the US. Put it back in at bottom, and invest in blue chips, then you'll make a killing.

Here we are in full agreement. Course the trick is to guage when we'll hit bottom. I figure 2012 or thereabouts.

Memory is a strange bell, jubilee and knell.

Sorry, that's "...theory of the unitary executive..."

tnt needs to track moderation. stats page!

First, Jackson probably never said that, and second, it was Van Buren who actually ordered the Army to displace the Cherokee.  What has Bush ever done that was that unconstitutional or evil?

"Turning us into the Torture Nation" -- are you kidding?  Are you asserting that more torture has occurred under Bush than under any other President in our history?  Do the many Presidents who aided and abetted the institution of slavery (like Van Buren, who actively helped it out) get a free pass here?  How about the prison camps in the Civil War -- are you under the impression that those were 100% torture-free?

As for "everything the guy touches turns to shit," at least the economy is not awful.  On top of his other awfulness, Van Buren presided over what was possibly the worst depression in U.S. history.

So, really?  Worst ever?  I don't think Bush comes close to beating Van Buren.  And I haven't even gotten into James Buchanan yet.

marduk, you really need to read a biography of Herbert Hoover.