U.S. Federal Reserve System, Washington, D.C.


Liu Jie/Zuma Press

Negotiations on Covid’s rescue plan continue in Congress, with the parties more or less agreeing to spend $900 billion more in just three months. But they’re still fighting over the details, and a big obstacle is the Democrats’ desire to use the Federal Reserve next year to channel tens of billions of dollars or more into state and local budgets.

The battle behind the scenes is about money and the credibility of the Fed’s lending institutions in the event of a pandemic (13(3)). The Republican Senators, led by Pennsylvania…

Pat Toomey,

want to reallocate about $429 billion of the Health Care Act’s resources to pay for about half of the new expenditure. The Fed provided only $25 billion in loans and other commitments because most companies and municipalities were able to borrow cheap money on the private market.

Head of the Central Bank

Jerome Powell.

It was agreed to return unused funds to the Minister of Finance.

Steven Mnuchin.

Just ask. Although the Affordable Care Act clearly requires that the programs be closed by December 31, Democrats insist that the Biden Treasury Department could revive the programs and restart loans. That is why Mr Toomey also wants the bill to be drafted in such a way that there is no doubt that the programmes will end on the 31st. End of December. Biden’s Ministry of Finance then needs new funding for the congress to revive the programs.

The fact that Democrats object to Toomey’s language suggests that their plan is to use the Fed to bypass Congress if they don’t control the Senate next year. They fear that the GOP Senate will not accept another rescue plan for wasteful states like Illinois and New Jersey. They want to use the Fed’s local and national loan fund, set up this year in the context of the pandemic and market turbulence, as a rescue plan.

Even if the $429 billion isn’t enough to cover the cost of the project. The $35-40 billion given to the Treasury is earmarked for other aid from Covids, with the Fed still withholding about $35-40 billion. It can be used up to ten times to lend to states and cities on terms set by the Biden Treasury and the Fed. This is another reason why Republicans insist on Mr. Toomey’s language and shut down programs.

The financial markets are in good shape, unlike the months of March and April. Well-managed states are looking for ways to overcome the pandemic and state revenues have not fallen as much as feared. The $900 billion bill also includes tens of billions of dollars in aid to states for hospitals, distribution of vaccines, protective equipment, child care, education, broadband, food stamps, public transportation and more.

This is all a matter of fiscal policy, which is determined by Congress. Nonetheless, the Democrats want to use the Fed as a second fiscal link that they can take up at the discretion of the Treasury and the Fed. This is not the most appropriate role for the Fed, especially when the financial situation is over. Illinois and the New York Metropolitan Transportation Authority are the only two public entities that have borrowed from the Fed.

But if the Treasury gets the Fed to offer brokerage terms or even free money, many others will queue up. Given the policies of these states and cities and their inability to reform anything in government, the Fed could end up making large losses on these loans. Taxpayers would be the losers of this roundabout.

Democrats get most of what they want with $900 billion, or $300 billion a month. They get another chance to spend more time next year when they control the House, the White House and eventually the Senate.

This is another reason why Republicans insist on Toomey’s language to be considered a deal breaker in the Covid Relief Bill. If Democrats want to save public trade unions in progressive states, they must do so honestly through Congress. Leave the FBI out of it.

Wonderland: Does politics have a more important goal than the division of power into different categories? Images : Getty Images Composite : Mark Kelly

Copyright ©2020 Dow Jones & Company, Inc. All rights reserved. 87990cbe856818d5eddac44c7b1cdeb8

Published in the printed edition of 18. December 2020.

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