Treasury Secretary Steven Mnuchin on Friday defended his decision to terminate more than $450 billion worth of emergency lending programs that extended credit to businesses and local governments amid the coronavirus crisis.
Mnuchin said that most of the money provided by Congress to the Federal Reserve Bank had not been spent and with the programs scheduled to cease operations at the end of the year, the money should be used instead to support small businesses and the unemployed.
“The people who really need this support right now are not the rich corporations — it’s the small businesses; the people that are unemployed. Those are the people we need to help the next few months," Mnuchin said. “Let’s go use this money in parts of the economy that need it.”
Senate Majority Leader Mitch McConnell (R-KY) echoed Mnuchin Friday, saying that he supports the idea of repurposing various unused emergency funds, the value of which he pegged at $580 billion. “Congress should repurpose this money toward the kinds of urgent, important and targeted relief measures that Republicans have been trying to pass for months, but which Democrats have repeatedly blocked with all-or-nothing demands,” McConnell said in a statement.
Repurposing the funds may not be easy, however, given the rules of congressional budgeting. The Congressional Budget Office assumed the money allocated by Congress to the Fed would be used for loans that would be repaid, creating no net loss or gain. Using the funds for other purposes could generate different results.
Critics pounce: The Fed issued a statement late Thursday expressing its criticism of Mnuchin’s decision. “The Federal Reserve would prefer that the full suite of emergency facilities established during the coronavirus pandemic continue to serve their important role as a backstop for our still-strained and vulnerable economy,” the bank said.
Democrats also expressed their disapproval, charging Mnuchin with undermining the incoming Biden administration. “Secretary Mnuchin is removing critical support from a weak economy against the Federal Reserve’s wishes. This is economic sabotage,” Oregon Sen. Ron Wyden, the ranking Democrat on the Senate Finance Committee, said in a statement. “Secretary Mnuchin is salting the earth in an attempt to inflict political pain on President-elect Biden.”
The Bloomberg editorial board said the Fed programs are still needed and should be extended, as expected: “When the programs were created, the clear intent was to extend them as long as necessary, just as the Fed did with its emergency lending facilities during the 2008 financial crisis. They remain necessary: With Covid-19 resurgent across the country, the economic outlook darkening, and Congress making no progress on added fiscal relief, it would be profoundly irresponsible to remove the one remaining lifeline that companies and municipalities have.”
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 a good economic or public health or social reason to explain why they want to cut these programs at this particular time, so it has kind of got to be politics, doesn’t it?” Weinberg said. “These are the lifeboats for the economy, these are the places for companies to go when there is no place else to go, whether they are small business or medium-sized businesses, not the big ones that can go to the capital markets, but the little ones.”
Other critics expressed concern about the nature of the dispute. “This is a significant and disturbing breach at a critical time for the economy,” Tony Fratto, who worked at the Treasury and the White House during the George W. Bush administration, told Bloomberg. “We need all the arms of government working together and instead we’re seeing a complete breakdown.”