Mnuchin Defends Decision to End Emergency Lending Programs
Treasury Secretary Steven Mnuchin on Friday defended his decision to end more than $ 450 billion in emergency loan programs that businesses and local governments use to obtain credit amid the coronavirus crisis.
Mnuchin said most of the money that Congress provided to the Federal Reserve Bank had not been spent. With the programs expected to end by the end of the year, the money should instead be used to support small businesses and the unemployed.
"The people who really need this support right now aren't the rich companies - it's the small businesses. The people who are unemployed. These are the people we have to help out over the next few months," said Mnuchin. " Let's use that money in parts of the economy that need it. "
Senate Majority Leader Mitch McConnell (R-KY) reiterated Mnuchin on Friday, saying he supports the idea of reusing various unused emergency funds, which he valued at $ 580 billion. "Congress should use this money for urgent, important, and targeted relief efforts that Republicans have been trying to get through for months but the Democrats have repeatedly blocked with all-or-nothing demands," McConnell said in a statement.
However, repurposing the funds may not be easy given the congressional budgeting rules. The Congressional Budget Bureau assumed that the money allocated by Congress to the Fed would be used on loans that would be repaid, thereby creating no net loss or gain. Using the funds for other purposes can lead to different results.
Critics tumble: The Fed issued a statement late Thursday expressing its criticism of Mnuchin's decision. "The Federal Reserve would prefer the full range of emergency facilities put in place during the coronavirus pandemic to continue to play their vital role in supporting our still strained and fragile economy," the bank said.
Democrats also expressed their disapproval, accusing Mnuchin of undermining the incoming Biden administration. "Secretary Mnuchin is removing critical support for a weak economy against the will of the Federal Reserve. This is economic sabotage," Oregon Senator Ron Wyden, the senior Democrat on the Senate Finance Committee, said in a statement. "Secretary Mnuchin is salting the earth to inflict political pain on President-elect Biden. "
The Bloomberg editorial team said the Fed programs were still needed and expected to expand: “When the programs were created, the clear intention was to extend them for as long as necessary, as the Fed did with its emergency credit facilities during the Year has done 2008 Financial Crisis. They Remain Necessary: With the revival of Covid-19 across the country, the darkening of the economic outlook, and the fact that Congress is making no progress on additional tax breaks, it would be deeply irresponsible to the remaining corporate lifeline and remove municipalities. "
Carl Weinberg, chief economist at High Frequency Economics, told CNBC that Mnuchin's decision was like removing the lifeboats from the Titanic. "I don't think there is any good economic, public, or social reason to explain why they want to cut these programs at this particular time. So it has to be some kind of policy, doesn't it?" Said Weinberg. "These are the lifeboats for the economy, these are the places businesses can go when there is no other place, whether they are small or medium-sized businesses, not the big ones that can go into the capital markets, but the little ones. "
Other reviewers have expressed concern about the nature of the dispute. "This is a major and worrying breach at a critical time in the economy," Tony Fratto, who served in the Treasury and White House during the George W. Bush administration, told Bloomberg. "We need all the arms of the government to work together and instead we are seeing a complete breakdown."
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