McConnell proposes shifting unspent small business funds to COVID-19 aid

Andrew Cummings
November 22, 2020

Economists have also said the sectors of the economy hardest-hit by the pandemic - including small businesses, restaurants and hotels - need grants more than they need loans.

US Secretary of the Treasury Steven Mnuchin, in a letter to Fed Chairman Jerome Powell, sought a 90-day extension for four of the central bank's emergency lending programs, while requesting five other programs expire on schedule on December 31 and the Fed return unused funds, allowing Congress to reappropriate US$455 billion and spend the money elsewhere.

"There is an obvious right use for these hundreds of billions of dollars of already allocated but unused funds", McConnell said in a statement.

"Congress should repurpose this money toward the kinds of urgent, important, and targeted relief measures" Republicans have been advocating, McConnell said, without mentioning any of the initiatives Democrats have been seeking in new legislation. That money could be spent immediately to fund the next stimulus bill, argued Mnuchin, who said he will work with and call on Congress to get to work on the next stimulus bill. Next month, the United States economy faces another cliff with 12 million jobless Americans at risk of losing all their unemployment benefits because federal initiatives are expiring. "I think that's very important", Dallas Fed President Robert Kaplan said earlier on Thursday in an interview on Bloomberg TV, referring to the section of the Federal Reserve Act providing the authority for emergency lending.

Mnuchin said in the letter that these emergency lending facilities, which are set to expire at the end of the year, "have clearly achieved their objective". "They weren't in the room, that's not their job", he said. But policymakers at the Fed and Treasury agree that their presence helped to restore liquidity and instill confidence in financial markets severely rattled in the early days of the pandemic, allowing businesses and municipalities to continue to borrow.

He urged Congress to reallocate the money, though it would require the Fed to sign off as well.

The Fed's intervention into corporate bond markets was particularly effective, staving off a massive wave of bankruptcies. "We need this money to go help small businesses that are still closed or hurt, no fault of their own". "Or people who are gonna be on unemployment that's running out".

Powell's letter struck a more collegial tone than a one sentence statement the Fed issued Thursday. He credited the programs with preserving stability in the financial system and said unspent funds would be returned. Using the funds for other purposes could generate different results. Democrats, as well as the Fed, say that removing the safety net of these programs as the virus surges again through the country is not a good idea. They argued it would limit the tools available to President-elect Joe Biden to strengthen the economy.

Mnuchin is focused, the official said, on additional paycheck aid to idled workers, unemployment compensation and grants to help businesses that have been struggling amid COVID shutdowns, as many firms can not take on more debt.

The top two United States economic policymakers have parted ways over whether to preserve emergency lending facilities created to shore up the economy - a rare moment of discord as the nation confronts the risk of a renewed downturn spurred by a surge in coronavirus cases. However, the Trump administration struck a more optimistic tone about the risks facing the USA economy.

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