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Treasury Secretary Steven Mnuchin was accused on Friday of making “exactly the wrong policy decision right now” and sabotaging the economy for the new Biden administration after announcing a year-end cutoff for several key government programs. Federal Reserve coronavirus relief loan.
CNBCThe report quotes a financial expert who compared Mnuchin’s decision to strip a ship of its lifeboats when they needed them most. The point of sale explained:
Mnuchin announced Thursday that he will not extend the Federal Reserve’s emergency loan programs that used congressional CARES law funds beyond December 31. This move is expected to significantly reduce the central bank’s ability to consolidate the financial system.
“It’s hard to find an economic rationale for this,” said Carl Weinberg, chief economist at High Frequency Economics. CNBCFriday’s “Squawk Box Europe”.
“I don’t think there is a good economic or public health or social reason as to why they want to cut these programs,” he added, “so that must be politics, isn’t it? isn’t it? “
This is an array of Fed-facilitated relief loan programs with funds provided by the Treasury that were authorized by Congress earlier this year. These programs include: the Primary Market Business Credit Facility, the Secondary Market Business Credit Facility, the Municipal Liquidity Facility, the Main Street Loan Program and the Asset Backed Securities Lending Facility. term assets.
“Regarding the facilities that have used the funding from the CARES Act,” Mnuchin wrote Thursday to Federal Reserve Chairman Jerome Powell, “I personally participated in drafting the relevant part of the legislation and I believe that the intention of Congress, as described in section 4029, was the power to make new loans or purchase new assets (directly or indirectly) expires December 31, 2020. “
“As such, I ask the Federal Reserve to return the unused funds to the Treasury.” This will allow Congress to reclaim $ 455 billion, including $ 429 billion in surplus from the treasury for Federal Reserve facilities and $ 26 billion in unused direct cash loan funds, ”Mnuchin wrote.
Mnuchin’s letter, as Bloomberg News reported, elicited a quick rebuke from Powell. In a statement released “a few minutes” after Mnuchin’s letter, the Fed urged that “all emergency facilities put in place during the coronavirus pandemic continue to play their important role of supporting our economy again. tense and vulnerable “.
“The central bank,” noted Axios, “Hardly ever publishes public statements”.
The Trump administration’s decision drew a chorus of criticism from economists, including Paul Krugman.
In a Friday Twitter thread, Krugman said that “Mnuchin is indeed trying to create a financial crisis, or at least make one more likely.” Krugman added that “basically we are looking at more sabotage by a dying administration.”
Krugman was far from alone in his review:
Mnuchin’s announcement also drew scathing criticism from Neil Barofsky, former Inspector General of the Troubled Asset Relief Program, who described switching from programs to cutting block as a “reckless political decision” and called the Trump administration “not to [to] succumb to the political temptation to straitjacket his successor. “
In his editorial from Friday to New York Times, Barofsky urged Mnuchin to follow the approach of the outgoing Treasury Department of the George W. Bush administration when he “did all he could to preserve President-elect Barack Obama’s discretion to use bailout funds Congress-approved Troubled Asset Relied program … to drive our nation’s recovery. “
Trump’s Treasury Department, Barofsky writes, “should reverse [its] unwise and follow the precedent set with TARP by expanding these programs to give the newly elected administration as much flexibility as possible. “
“It makes no sense to celebrate the programs for the success they have had in calming the markets,” Barofsky added, “while pulling the rug under them at a time when they are probably most needed. “
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