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Posted: August 30, 2009

Former U.S. Treasury Secretary wary of deflationary threat

John Snow tells Colorado business people ‘we’re not out of the woods yet’

Mike Taylor

Former U.S. Treasury Secretary John Snow says the U.S. economy is showing signs of recovery, but he warns that deflation could cause the kind of recession relapse or “double dip” experienced in the Great Depression.
“I think we’ve avoided the darkest and most difficult scenario,” said Snow, who served as Treasury secretary under George W. Bush from 2003 to 2006. But tempering that guarded optimism, he pointed out there was a short-lived recovery in the early stages of the Great Depression, too, before the economy plunged again.
“We were coming out of the recession in 1933, and then in 1937 the Fed pursued restrictive policies, and the unemployment rate shot up again. And we had the replay of the recession in 1937,” Snow told a crowd of about 2,000 attendees at the downtown Denver Hyatt Regency on Aug. 25. 
Snow was brought in by the Aurora Economic Development Council as the keynote speaker for A-List 2009, an annual event that celebrates economic success in the state. This year’s event highlighted the work of Accelerate Colorado, which hosts an annual business mission consisting of 100 leaders from business, government, education and economic development who travel to Washington D.C., to advocate for federal support.
Also during the event, Accelerate Colorado gave its A-List Leadership Award to Colorado’s entire congressional delegation.
Snow, who resigned as Bush’s Treasury secretary in June 2006, now is chairman of Cerberus Capital Management. He said the big concern for policymakers today is the phenomenon of de-leveraging – the effect of households, banks and other businesses, after overextending themselves for years, now trying to pay off debts and conserve all at once.
“The extent of this reduction in consumption is truly dramatic,” Snow said. “It’s estimated we’ll see a reduction in consumption of $1 trillion. We’ve lost $20 trillion to $25 trillion of wealth from American households, 401(k)s, portfolios. When consumption falls, investment falls, which is another pillar of the economy, creating this powerful set of deflationary forces that are running through the economy."
Snow said he thinks the current administration has done a “credible job,” but added, “I hope the administration will soon begin to develop a plan to disengage from all the government. Government was necessary, but too much government will create the very problems we need to avoid.”
Regardless of when the U.S. economy recovers, Snow says it won’t resemble what it once was.
“We have to confront the fact that the old model is gone,” he said. “The U.S. will always be a major, major force, but we’re not going to be driving the economy of the world like we have. We drove it by what now turns out to be excess consumption. We’re not in a position to do that anymore.
“Sectors that really prospered from lending – the financial sector, the housing sector – are going to find themselves less robust. America has to find something else to produce. We need to become more innovative in producing products that our consumers want so we aren’t just buying from the rest of the world.”


Mike Taylor is the managing editor of ColoradoBiz. He writes about small-business money issues and how startups are launched. Email him at

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Readers Respond

Excellent article. By Patricia B Smith on 2009 08 31

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