The country must watch for the possibility of a double-dip recession, cautioned John Snow, former U.S. Treasury secretary.
“The bigger devil to deal with is the prospect of the country toppling over again,” Snow told a luncheon crowd of 1,500 business and political leaders at the Hyatt Regency Denver on Tuesday.
As part of an annual event, the Aurora Economic Development Council brought in Snow, who was Treasury secretary from 2003 to 2006 under then-President George W. Bush.
Accelerate Colorado, the government advocacy arm of the council, also gave its A-List Leadership Award to Colorado’s congressional delegation at the luncheon. Accelerate Colorado launched this year to advocate for federal support beneficial to the state’s business community.
Snow, who left the Bush administration to work as chairman of Cerberus Capital Management, talked about causes of the downturn and prospects for recovery.
Economists refer to the scenario Snow describes as a “W” recovery — down, up and down again. It happened in the 1930s and early 1980s.
One raging debate is whether inflation or the opposite — deflation, or falling prices — represents the greater threat to the economy.
Heavy federal borrowing will cause investors to demand a higher return in yield and weaken the value of the U.S. dollar, inflationists argue.
Although the administration will at some point need to disengage from heavy borrowing, Snow said deflation represents the greater threat to the country.
Tackling inflation too soon could cause any recovery to reverse course, as was the case in the mid-1930s. Central bankers then tightened the money supply too quickly, aborting an economic recovery and turning that decade’s downturn into the Great Depression.
U.S. households have lost about $25 trillion in wealth, which will cut consumption by about $1 trillion a year, Snow said.
The drop in consumption was accompanied by a sharp drop in investment, leaving only the government to step in and prevent a total collapse. “We were really looking over the precipice,” Snow said.
The world will need a different economic model going forward, one that doesn’t rely on U.S. consumers to drive economic growth.
“America has to find something else to produce,” Snow said, citing predictions that consumer spending will drop from 70 percent of all economic activity to about 63 percent.
Aldo Svaldi: 303-954-1410 or asvaldi@denverpost.com
