Time to Defund the Pentagon?

By Yuval Rosenberg

Mnuchin Calls for More Covid Aid, Says
Congress Should Consider Forgiving ‘Small’ Loans

Treasury Secretary Steven Mnuchin on Friday called on
Congress to work with the Trump administration to pass additional
coronavirus relief legislation by the end of the month and
suggested that lawmakers should consider blanket forgiveness of all
small Paycheck Protection Program loans to businesses.

Additional aid should be targeted to those hardest
hit: In his
prepared testimony before the House Committee on
Small Business, Mnuchin said he anticipates that the next round of
relief will be "targeted to certain industries, smaller businesses,
and lower- to middle-income families that have been especially
hard-hit by the pandemic." He added: "Our focus will be on jobs and
getting all Americans back to work."

Forgive all ‘small’ PPP loans? Mnuchin
said that the next phase of relief should extend the $660 billion
Paycheck Protection Program and allow businesses to get a second
round of loans, but again called for the aid to be more targeted to
smaller companies and industries suffering most from the pandemic,
including as restaurants, hotels and other travel and hospitality
businesses. "I think this time we need to have a revenue test and
make sure that money is going to businesses that had significant
revenue declines," he reportedly said.

In response to a question about how the loan process could
be simplified, Mnuchin suggested that the government should
consider forgiving all "small" loans without verifying how the
borrowed money was spent. "We should consider forgiving all small
loans, but would need fraud protection," Mnuchin
said.

PPP borrowers may qualify to have their low-interest loans
turned into grants if they meet certain criteria, including
verifying that at least 60% of the funds went toward paying
employees. Loans can also be partially forgiven if borrowers don’t
meet that threshold.

The Treasury Department and SBA are reportedly grappling
with how to process millions of likely applications for loan
forgiveness.

The administration has yet to open an online portal for
banks to apply for loan forgiveness on behalf of borrowers, but
Small Business Administration chief Jovita Carranza said Friday she
hoped it would be ready by next month. Some lawmakers and
small-business advocates have complained that the forgiveness
application process is too complicated. "We’re going to have a very
robust process to review loans before loans are forgiven," Mnuchin
reportedly said Friday. "In the forgiveness process, people will be
required to provide much more data and that data will be
released."

Some lawmakers, banks and other businesses have suggested
that loans under $150,000 should automatically turned into grants.
Nearly 150 industry trade groups wrote to Congress earlier this
month in support of the idea, saying it would save more than $7
billion.

Mnuchin did not specify on Friday what the threshold for
such blanket forgiveness might be. The smallest loans tracked by
the SBA in its reports are up to $50,000 and account for nearly 70%
of all loans under the program, The Washington Post
reports. Setting the bar at $150,000 would account
for about
86% of the nearly 5 million PPP loans and about
27% of the roughly $520 in approved funds.

Bernanke and Yellen Urge Congress to Extend
Unemployment Benefits

Former Federal Reserve chairs Ben Bernanke and Janet
Yellen urged lawmakers not to let enhanced unemployment benefits
expire this month and to set aside deficit concerns for now to
deliver the stimulus the economy needs in the face of the
coronavirus pandemic. "We do not believe that concerns about the
deficit and debt should prevent Congress from responding robustly
to this emergency," Yellen told lawmakers Friday.

The Hill’s Sylvan Lane
reports:

"In testimony before the special House coronavirus
subcommittee, the two most recent former Fed chiefs warned
lawmakers that the U.S. could face deep, permanent economic damage
without more than $1 trillion in further stimulus. … Bernanke — a
former Republican who disavowed the party in 2015 — and Yellen, a
Democrat, said the next congressional stimulus measure should focus
on three areas: investing in the medical response to the pandemic,
extending enhanced unemployment benefits, and giving local
governments enough financial support to sustain crucial services
amid steep revenue shortfalls."

In a New York Times op-ed earlier this week, Bernanke
urged lawmakers to provide
more aid to states to avoid a prolonged economic
downturn.

IMF Urges US to Pass More Stimulus

The International Monetary Fund said Friday that the U.S. is
facing serious economic challenges – caused by both the coronavirus
and long-term issues including growing inequality and declining
socioeconomic mobility – and urged the country to deploy more
fiscal stimulus in order to boost growth.

"The U.S. has fiscal space and it should be deployed quickly to
hasten the recovery from the second-quarter contraction,
permanently improve the social safety net, and facilitate a broader
remaking of the U.S. economy," the IMF said in a
statement.

As part of its annual review of the U.S. economy, the
international organization provided growth estimates for 2020.
According to its analysis, the economy shrank 37% on an annualized
basis in the second quarter and is projected to contract by 6.6%
for the full year.

Looking ahead, the IMF said the U.S. still faces a significant
economic risk from a resurgence of the coronavirus, which may be
getting underway right now. Even without a second wave of the
virus, though, negative effects from the pandemic contraction could
linger. "[T]the risk ahead is that a large share of the U.S.
population will have to contend with an important deterioration of
living standards and significant economic hardship for several
years to come," the IMF said. "This, in turn, can further weaken
demand and exacerbate longer-term headwinds to growth (e.g. by
preventing the accumulation of human capital, eroding labor force
participation, or contributing to social unrest)."

Quote of the Day

"People are viewing this as a one-in-a-century kind of event.
Even many of those who would generally oppose deficit borrowing are
saying this is an act of God, and we should borrow."

-- Patrick Brett of Citigroup, quoted in a Bloomberg

article about the growing wave of debt issuance by
states as they turn to the municipal-bond market to cover massive
budget deficits caused by the coronavirus crisis.

Defund the Pentagon? Views From Left and Right

Politico published dueling op-eds this week on the topic of
reducing funding for the Pentagon. Andrew Lautz of the National
Taxpayers Union and Jonathan Bydlak of the R Street Institute
provide a conservative view on the issue,
arguing that the recent unprecedented increase in
federal outlays in response to coronavirus crisis should inspire a
total review of other spending in the federal budget — beginning
with "the single largest part of the federal discretionary budget,
an entire category of spending that has long been off the table:
the Pentagon."

Lautz and Bydlak say that while many conservatives give
the Defense Department a free pass when it comes to bloated budgets
and unrestrained spending, at "a time of enormous deficits and
record debt, this can no longer be acceptable." They join with
libertarians on both the left and the right in calling for reduced
defense spending and more comprehensive audits of allocated funds.
Although short on details, they say they stand by the idea that "in
a post-coronavirus world, all expenditures can and must be on the
table."

From the left, Sen. Bernie Sanders (I-VT)
says the coronavirus crisis makes it clear that
"now is the time to fundamentally change our national priorities,"
starting with the $740 billion defense bill Congress is expected to
approve in the coming weeks. "After adjusting for inflation,"
Sanders writes, "this bill would spend more money on the Pentagon
than we did during the height of the Vietnam War even as up to 22
million Americans are in danger of being evicted from their homes
and health workers are still forced to reuse masks, gloves and
gowns."

In an effort to rebalance priorities, Sanders has
introduced an amendment to the National Defense Authorization Act
that would cut overall defense spending by 10% — $74 billion —
while redirecting the funds "to invest in communities that have
been ravaged by extreme poverty, mass incarceration, decades of
neglect and the Covid-19 pandemic."

Quoting Republican President Dwight D. Eisenhower, Sanders
makes the case that concerns about excessive defense spending have
long been bipartisan. As the former Supreme Commander of the Allied
Expeditionary Force in Europe during World War II said in 1953:
"Every gun that is made, every warship launched, every rocket fired
signifies, in the final sense, a theft from those who hunger and
are not fed, those who are cold and are not clothed."

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