John Snow, who was Treasury secretary from 2003 to 2006, says the credit markets are returning to stability but could still have a major, negative effect on the economy.

“I think we’ll have it (credit market difficulties) with us for some time,” Snow told Bloomberg News in a recent interview.

“We are beginning to see some normalcy in the credit markets, but we are far from where we need to be. The credit markets are the single biggest threat to the U.S. economy now.”

And why is that? “Because we’re an economy that depends on credit,” says Snow, now chairman of private equity firm Cerberus Capital Management.

“If credit-worthy borrowers can’t get access to credit for their homes, cars, appliances, vacations and education, then we’ll see a sharp downturn in economic activity in the U.S. It’s critically important that the credit markets open up and soon.”

Snow thinks the economy can avoid a long and severe recession. “There’s an inherent flexibility and resilience in the American economy,” he says.

“We don’t have long and deep recessions anymore because of internal adjustment mechanisms that allow us to move through difficult times. We have many shock absorbers in the economy.”

One of those now is exports, Snow says.

“Exports are helping to take the American economy through weakness in a number of other sectors – housing, credit and consumption.”

As a result, “Many prophets of doom will be shown to be wrong,” he argues. “Certainly we have slower growth, weaker labor markets, and consumption is down.

“But just look at exports and companies that are showing very good profits because they are part of a global economy that is still performing well.”

Still, Snow acknowledges: “If the credit situation doesn’t open up, it will put real strain on the economy soon.”

The former Treasury secretary stood up for sovereign wealth funds, which some critics argue are negative for the U.S. economy. “Sovereign wealth funds are playing a very important role in the global economy,” he says.

“In the U.S. there is a need for financial institutions to recapitalize. Sovereign wealth funds are providing that capital. Questions are being raised, but overall they are a very important and responsible force in the global economy,” Snow maintains.

“As long as they continue to invest for financial reasons and returns and are responsible stewards of their money, they will find a real place in the global economy and will be welcomed because they provide a critically important role.”

As for Cerberus’ activities in China, “We look for companies that are underperforming and can do much better with an infusion of capital and good management,” Snow says.

“We sense a lot of opportunities. There is also an opportunity to partner with Chinese companies investing outside China. They have a lot of interest in investing in the U.S. and Europe, where we can play a helpful role.”