Geithner warns against pulling stimulus too soon
NEW YORK — Treasury Secretary Timothy Geithner said Thursday the economy is in the midst of a recovery that could be imperiled if the government’s support systems are removed too quickly.
“A classic pattern in past financial crises is governments tend to put on the brakes too soon, withdraw support too early, and that’s been a very costly mistake and we’re going to be very careful to avoid that mistake,” Geithner said at a conference sponsored by The Economist magazine in New York.
Geithner stressed that a robust recovery depends on businesses investing more in the economy and that it is the government’s responsibility to give them the tools to do that.
While he said he’s seeing signs of improvement, Geithner stressed that the recovery will be slow.
“We’ve improved the prospects that we’re not going to be consigned to a prolonged period of below-trend growth,” he said. But there will be a long period of adjustment as consumers save more and businesses work to improve their balance sheets.
“Realistically, it’s going to be a slower than typical recovery,” he said.
Geithner’s comments come as the debate heats up over when the government should remove its fiscal stimulus programs and curtail its massive spending, and whether the economy will be strong enough to stand on its own once it does.
“Businesses across the country are still uncertain about how strong demand is going to be,” he said. “If you don’t make people confident that you’re going to allow recovery to happen and become self sustaining, then the risk is you’re going to have weaker recovery.”
Part of building confidence will come from the government’s success in effectively regulating the financial system and enforcing more transparency among the nation’s top banks, he said, defending the government’s efforts to rein in executive compensation practices.
Geithner said it doesn’t make sense for the government to set executive pay levels. Instead, the government is trying to “change the practices, change the incentives” so that excessive risk-taking is not rewarded.
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