Reversing Stimulus is under consideration

G-8 finance ministers began drawing up contingency plans for rolling back budget deficits and bank bailouts as the economy shows signs of recovery and investors start worrying about inflation.

It’s prudent to consider what exit strategies to deploy once global growth is secured and how to do so without reigniting the two-year crisis. At the same time, it’s premature to rein back more than $2 trillion in stimulus packages.

But some politicians stressed the necessary to continue focusing on the growth now, it is too early to shift toward policy restraint according to the speech by U.S. Treasury Secretary Timothy Geithner.

The dilemma for policy makers is that withdrawing stimulus measures too soon could choke the recovery before it starts, and allowing them to last too long might push up borrowing costs.

Markets aren’t looking for specific exit strategies now, but want governments to start thinking about them. They worry that inflation is going to build up if nothing is done to withdraw the stimulus.