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As the economic outlook worsens, Steven Mnuchin is “stripping lifeboats from the Titanic,” said Elliot Smith at CNBC. That’s how one economist described the Treasury secretary’s decision to end several of the Federal Reserve’s emergency lending programs by Dec. 31. The $650 billion in potential aid put in place by the CARES Act could soon disappear. That includes two programs that buy corporate bonds and the Main Street lending program for companies with up to 15,000 employees. Mnuchin said it was never Congress’ intent to let the central bank keep the money past 2020. But the move apparently caught the Fed by surprise. The Fed still has significant “lending authority to backstop markets in the event of a disruption.” But a new crisis serious enough that it demands a revival of the emergency programs would require another agreement with the Treasury.
Why take money out of the economy as the country faces a chaotic transition and resurgent pandemic? asked The Washington Post in an editorial. Mnuchin is correct that “usage of these funds has been minimal” — only $25 billion in actual lending. But that’s partly because the private markets were confident “the Fed was standing by with a huge arsenal of financial firepower.” It’s hard to read Mnuchin’s decision “as anything other than an intentional act of sabotage,” said Jordan Weissman at Slate. He says “his intentions are pure” and that he’s “bound by law to wind down the programs.” Yet just a month ago Mnuchin said that “Treasury would consider extending them” based on market conditions. What changed? Trump lost the election.
What has also changed is that markets “have healed” and no longer need this reassurance, said The Wall Street Journal in an editorial. The Municipal Liquidity Facility has made exactly two loans. The situation with the corporate lending program is similar. This is an illustration of Milton Friedman’s maxim that “nothing is so permanent as a temporary government program.” Granted this money in an emergency, the Fed is now looking to keep it “to use for whatever purpose and for as long as the central bank wants.” Mnuchin is right to let it go back to the government’s coffers — where it could even “pay for a new COVID relief bill if Speaker Nancy Pelosi ever agrees to compromise.”
If there was genuine debate about how to use this money, “Mnuchin and Fed Chairman Jerome Powell could have resolved their problems in private,” said John Foley at BreakingViews. Republicans might be reasonable in suggesting that “grants to small businesses or households” might be a better use for the money. But Mnuchin’s abrupt 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 on earth” was “the sense among officials at the Treasury and the Federal Reserve that they are ultimately on the same team,” said Neil Irwin at The New York Times. But the decisions by the outgoing administration that deprive President Trump’s successor “of crucial tools to sustain and revitalize the economy” suggests that the tradition of a smooth economic handoff is dangerously breaking down.
This article was first published in the latest issue of The Week magazine. If you want to read more like it, you can try six risk-free issues of the magazine here.