On one hand Geithner says the recovery is stronger than expected, on the other he says it’s not time to roll back the stimulus. Please consider Geithner Says Recovery Signs Are ‘Stronger’ Than Expected.

Treasury Secretary Timothy Geithner said signs of economic recovery are “stronger” and have appeared “sooner” than expected, while reiterating it’s not yet time to roll back stimulus programs.

Financial conditions have improved “dramatically,” particularly in the U.S., where the housing market has stabilized, Geithner said in a statement issued in Istanbul today. Still, jobless rates are “unacceptably high” and the financial system remains damaged. As a result, it’s too soon for governments to withdraw stimulus, Geithner said.

“Planning for an eventual exit is the responsible and necessary thing to do, but we are not yet in the position where it would be prudent to begin to withdraw fiscal and monetary policy support,” Geithner said in remarks released after a meeting of finance ministers and central bankers from the Group of Seven nations.

“Exit will not be like flipping a switch,” he said. “Instead, as conditions stabilize and growth strengthens, we will unwind the extraordinary policy measures we’ve taken, phasing them out carefully to avoid a damaging cliff.”

Signs, Signs, Everywhere A Sign

One might expect to see a few signs given the $trillions in expansion of the Fed’s balance sheet along with the massive stimulus programs coming from Congress.

However, cash-for-clunkers just blew up and we will soon find out what housing does after $8,000 handouts are taken off the table, and the Fed’s monetization of treasuries stops.

Certainly the stock market has recovered, but it is highly debatable if the stock market is any kind of leading indicator. I will have more in a look at leading indicators next week.

If one wants to consider signs, look no further than the treasury market which is flashing a huge warning message with a flattening of the yield curve. The 10-year note has fallen from a high of 4 to 3.22, 78 basis points of flattening.

If the treasury market was expecting a sustainable recovery, yields at the low end would not be sitting near 0 with yields on the top end falling like a brick.

This is the same warning message people have ignored before.

Yes Timothy, there are signs. However, the signs I am looking at suggest this recovery is not what you make it out to be.

Mike “Mish” Shedlock
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