President Obama, Congress and the Federal Reserve have had a hard time stimulating the American economy, but they have done a great job of stimulating the Chinese economy.
In May 2012, according to data released on July 12 by the U.S. Commerce Department, U.S. net goods exports to China (exports minus imports) hit a 12-month record low of a negative $286.5 billion for the 12-month period from June 2010 through May 2011, as shown in the graph below:
Meanwhile, U.S. overall net exports with the world also took a hit in May, with net exports of goods and services falling from a negative $43.6 billion for the month of April to a negative $50.2 billion for the month of May, on a seasonally adjusted basis.
Net exports are negative when foreigners demand fewer American products than Americans demand of foreign products. Persistent trade deficits eventually produce a state of persistent depression in the trade deficit countries, a fact pointed out by John Maynard Keynes in the chapter about mercantilism of his 1937 magnum opus, The General Theory of Employment Interest and Money. He wrote:
A favorable balance, provided it is not too large, will prove extremely stimulating; whilst an unfavorable balance may soon produce a state of persistent depression. (p. 338)
For a while, trade deficit countries can postpone a depression by running huge government budget deficits, if the mercantilist countries are willing to lend them the money, but such deficits cannot be continued indefinitely without producing financial crises.
The Ivy League-trained American economic leadership keeps trying Keynes' prescription for trade surplus countries while ignoring Keynes' prescription for trade deficit countries -- balanced trade -- which the United States could achieve by enacting the WTO-legal scaled tariff that my father, son and I have proposed.
At the moment, Governor Sarah Palin is the only potential candidate calling for balanced trade agreements. The choice for the American people could end up being President Palin or another four years of economic depression.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.