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If It Is 1929 In China, Have We Learned Anything?


When everyone is screaming sell, strong hands start buying.

If China's economy is cratering we have an opportunity to re-accelerate.

Don't listen to the Austrians. Don't make the same mistakes again.

Today is a day to make an Austrian economist's heart go pitter-pat.

The fall of China's market, becoming more spectacular by the day, is creating a contagion that is triggering a bear market in U.S. stocks.

To the Austrians, this is heaven. We're all about to lose our faith in central banks, they say. We need hard money, they say.

But what's money in the first place? Gold is not money. Oil is not money. If we have learned anything in the 86 years since the great Wall Street crash, it is that money is not a noun, but a verb. Money is a medium of exchange, not some object. When everyone is selling, simply ignoring the money problem and buying actually works.

That's why the Austrians were forced out of Austria in the first place. Europe, specifically Germany and Japan, went in and bought. They told the old debtors to pound sand, they created new money and new structures for themselves, and they bought. When the Austrians landed on these shores with their ignorant economic belief system, many Americans bought the nonsense, and rewrote a history of minor tinkering under Franklin Roosevelt into one of wild deficit spending.

History shows the wild deficit spending came later, when America learned what Germany had been spending all that money on, and that it worked.

So there are three ways this thing can go. We can listen to the Austrians, as Herbert Hoover did, and refuse to intervene in the economy. We can tinker at the margins, as Franklin Roosevelt did, and make ourselves feel better.

Or we can take the opportunity to spend.

Now is the time for a National Infrastructure Bank, a $1 trillion fund of new projects, with 10-year business models that return the investment. I'm talking toll roads, improved ports, environmental projects, and gigabit Internet for everyone. It's not as if there aren't good places to spend new money. It's not as if there aren't huge problems that demand solution. It's not as if you can't make money solving these problems.

If this once-in-a-lifetime opportunity is not seized by us, someone else will seize it, and they may not be buying solutions with it, but problems. Right now we're lucky, in that Russia can't afford guns, and China can't afford guns, and even the sheikhs in the Middle East can't afford guns. If we soak up the demand with projects that actually do some good for people, there won't be as much left to buy guns with.

If it really is 1929 in China, in other words, we have the chance to create a new 1930s. Or go through the old one all over again. Which will we do, focus on the problems or the opportunity?

Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.