Lots of the latest numbers are coming in well. New Claims for Unemployment insurance are moving in the right direction and at the right pace.

Importantly, the factors are aligning for the economy to “kick” that is enter a self-sustaining period of more rapid expansion. Looking at the labor market, the commodities markets and until recently the capital markets, there are no major impediments to the kick which means it could reach a pretty high speed. We could be talking about up to 5% or 6% growth by the end of 2012.

Now, I say a caveat because the obvious problem is Europe. If Europe goes very bad, well so does the Global Capitalist System. However, even Europe going marginally bad can put a major crimp on US growth.

If Europe goes even marginally bad then that is going to send money flooding towards the United States. That in turn will raise the dollar and crimp US exports. This is a bigger deal than the reduction in pure European demand from a recession because it will affect US industrial imports and exports around the world, not just high margin tech exports.

The money also doesn’t do the US any good unless it increases bank lending. And, with banks already sitting on an extra trillion in reserves its likely that a title wave of cash from Europe will simply join that pile.

Even worse disruptions in the European banking system could cause a contraction in bank lending here as banks are worried about their exposure.

Some people have mentioned concern that Europe’s pull back from the Shadow Banking system could cause problems. A pullback causing problems seems unlikely to me at this point: again because there are so many reserves sitting on the sideline.

There is plenty of cash to flood into the repo and commercial paper markets, so long as no one is worried about exposure to Europe. However, I am sure that people will be worried about exposure to Europe.

In any case right now everything hinges on the other side of the Atlantic. The ECB could make this problem go away for everyone, including the US. However, I am not holding my breath.

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