Sustaining Economic Recovery Remains Big "What-If" for the U.S.

So all is coming right. Sales of existing homes in the final quarter of last year were 27.2 percent higher than in 2008.

Retail sales and home construction rose in January; the mining, manufacturing and utilities sectors grew at satisfactory rates; and several companies reported profit growth in excess of what markets expected.

But it seems that every silver lining has a cloud — and in the case of the U.S. economy, several.

Even under the rosy scenario posited by President Barack Obama — economic growth about twice the rate the nonpartisan Congressional Budget Office is predicting — the deficit still will be unsustainably high, and rising, in 2020.

Red ink is not all that stands in the way of sustained recovery. Obama is counting on exports to create 2 million jobs, but he has so far made no progress in persuading the Chinese to abandon their policy of keeping their currency undervalued, some say by as much as 40 percent.

I say “so far” because there are rumors on Wall Street that Chinese authorities, concerned about overheating, are about to allow their currency to appreciate.

But my guess is that the regime’s need to create millions of new jobs every year to avoid social unrest will mean taking the growth rate down from around 10 percent to only a few points lower.

If I am right, Obama’s hope for an export-led, sustained recovery might flounder on the rock of continued growth in Chinese exports — not to mention the increase in exports from the European Union, with its shrinking euro.

Another factor that stands between the recent recovery and sustained economic growth is the Federal Reserve Board. Chairman Ben Bernanke has to sort out conflicting advice. Some of his board members want him to start unloading the assets that are swelling the Fed’s balance sheet.

But he’s also under pressure not to abort the recovery, lest he strengthen the position of the politicians who are howling for greater control of Fed policy.

If Bernanke acts too soon, the recovery could grind to a halt. But if he waits too long to start withdrawing cash from the system, the inflationary fears created by the red ink flowing out of the White House and Congress could result in a rise in interest rates that would be as lethal to the recovery as premature withdrawal.

Now that the Republican revival has ended the era of one-party government, and Tea Party activists are making their voices heard, the possibility of sensible compromise has increased — and with it, the prospect for sustained recovery.