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As the economic outlook deteriorates, Steven Mnuchin “strips the lifeboats of the TitanicElliot Smith told CNBC. This is how one economist described the Treasury Secretary’s decision to end several Federal Reserve emergency lending programs by December 31. The $ 650 billion in potential aid put in place by the CARES Act may soon disappear. includes two corporate bond buying programs and the Main Street loan program for companies with up to 15,000 employees. Mnuchin said Congress never intended to let the central bank hold the money beyond 2020. But the move apparently surprised the Fed. The Fed still has “significant lending power to support markets in the event of a disruption.” But a new crisis serious enough to require a relaunch of emergency programs would require another deal with the Treasury.
Why take money out of the economy as the country faces a chaotic transition and a resurgent pandemic? asked The Washington Post in an editorial. Mnuchin is correct that “the use of these funds has been minimal” – only $ 25 billion in actual loans. But that’s in part because private markets were convinced that “the Fed was standing by with a huge arsenal of financial firepower.” It is difficult to read Mnuchin’s decision “as anything other than an intentional act of sabotage,” Jordan Weissman told Slate. He says that “his intentions are pure” and that he “is required by law to end the programs.” Still, just a month ago, Mnuchin said “the Treasury would consider extending them” depending on market conditions. What changed? Trump lost the election.
What has also changed is that the markets “have healed themselves” and no longer need this insurance, said The Wall Street Journal in an editorial. The Municipal Liquidity Facility granted exactly two loans. The situation with the business loan program is similar. It is an illustration of Milton Friedman’s maxim that “nothing is as permanent as a temporary government program”. Having granted this money in an emergency, the Fed is now seeking to hold it “for any purpose and as long as the central bank wishes.” Mnuchin is right to let him go back to government coffers – where he could even “pay for a new COVID relief bill if President Nancy Pelosi ever agrees to a compromise.”
If there was a real debate about how to use this money, “Mnuchin and Fed Chairman Jerome Powell could have solved their problems in private,” John Foley told BreakingViews. Republicans might be reasonable in suggesting that “small business or household grants” might be a better use of the money. But Mnuchin’s blunt announcement seems to underline that “the outgoing administration has little incentive to make life easy” for the president-elect. Part of what “helped make the United States the richest nation in the world” was “the feeling among Treasury and Federal Reserve officials that they are ultimately on the same team,” Neil said Irwin The New York Times. But decisions by the outgoing administration that deprive President Trump’s successor of “crucial tools to sustain and revitalize the economy” suggest that the tradition of a smooth economic transfer is crumbling dangerously.
This article was first published in the latest issue of The week magazine. If you want to know more, you can try six risk-free issues of the magazine here.
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