A former Clinton administration leader is predicting a potentially "deep" recession, but he believes that the U.S. economy can overcome it.
Speaking at a conference Tuesday in Salt Lake City, Robert B. Reich, the U.S. Labor secretary from 1993 to 1997, predicted a 60 percent chance of a recession later this year or in 2009.
"We've been through recessions before," Reich told a group of about 400 people at the Association for Corporate Growth's Utah 2008 Growth Conference and Capital Connection, a top event for mergers and acquisitions and private equity companies. "This is not the end of the world. Recessions mean opportunities. Recessions are not necessarily bad. Sometimes recessions flush out some bad decisions."
Reich, currently professor of public policy at the University of California-Berkeley, said the pending recession will differ from other recent recessions.
"My big fear about the upcoming recession," he said, "is that it will be a big, consumer-driven recession, because essentially consumers will be, or already are, pulling back."
The pull-back is primarily the result of the housing bubble bursting, he said. Many people speculated on housing, saw their home values increase and went deeply into debt, including credit card debt. They used their houses as piggy banks for refinancing and home equity loans.
"Those piggy banks are now closing. The level of consumer debt right now is the highest we have ever seen, as long as statistics have been kept," he said. "My concern is it will be hard to get consumers to go back to the mall."
The economic stimulus package recently passed by Congress that would provide rebate checks to many consumers "is a joke," he said. "It's too little. Those checks will not be mailed out until May. The only thing it's going to stimulate are maybe some voters."
But Reich said he remains optimistic about the U.S. economy overall.
"I think there will be a deep recession it could be a significant recession but beyond that, the structure of the economy is very good," he said. "The economy over the long term will succeed."
Reich said the economic and political realms are "both in a state of upheaval." He said the next U.S. president will have to be "an educator" who is able to explain to the American people that globalization is in the best interests of the nation. "If other countries grow, it's good for us," he said, noting that that was a lesson America learned after World War II.
The next president also will need to educate Americans about the need for immigrants. The United States, he said, needs to secure borders and to "regularize" the way in which undocumented workers become citizens. Immigrants bring ambition to their new home, thus boosting the economy. "Although it may take a generation or two, immigrants and their descendants add more to an economy than they take out of it," Reich said.
Another problem facing the next president is a huge deficit. The national debt stands at $4 trillion and the budget deficit is "$400 billion as far as the eye can see.""Whoever the next president is, Democratic or Republican, is going to have a fiscal nightmare on his or her hands that makes Bill Clinton's problems in 1993 pale by comparison," Reich said. "(There's) no easy answer, folks. A lot of people on the left say, 'Well, raise taxes on the rich.' A lot of people on the right say, 'Well, cut government.' You can't do either one easily."