Trillions, Really

Trillions really header

After the shock of yesterday’s surge in unemployment insurance claims –from 211,000 in the beginning of this month to 281,000 for the week of March 14th—several themes emerged. Shutting down the economy for a health crisis leaves businesses with very few options but to lay off workers. This is a travesty that our nation’s policy guardrails are rusty, and our time at the gym lifting weights has not helped us lift up the economy. Looking ahead, there are many fixes to put in place.

For now, analysts are projecting jobless claims “in the millions.” Anecdotal reports are mounting and now, with many states closing down as Governor Cuomo announced for New York, today’s White House press briefing spent time talking about border containment and immigration. Not jobs.

Fiscal Proposals

The past 24 hours has seen a rapid movement of plans and options being proposed for a so-called “Phase 3” bill.

The New Democrat Coalition put together a thoughtful and comprehensive list of policy options that could be included in a proposal or in future phases of the coronavirus response. By breaking down the policies into groups, it’s the best list now for plug-and-play ideas to solve issues such as ending the pandemic, providing direct economic assistance and support to individuals, helping impacted businesses, and providing direct assistance to state, local, and tribal governments.

The big legislative proposal that most focus is on comes from Republican leadership in the Senate. Senator McConnell’s CARES Act fuses White House principles with Republican priorities. The major parts of the 247-page proposal include advance tax credits (via checks) for families, small business lending, an airline industry loan proposal, other corporate tax changes, and health care reforms.

But while there are many things we can and should change in this legislative proposal, there are two egregious parts to flag:

First, the bill revisits the Phase-2 bill’s paid leave proposals putting dollar-level caps on per employee leave. The emergency leave and sick leave proposals put into law under Speaker Pelosi and Secretary Mnuchin’s negotiated deal should only be reopened for unforeseen technical drafting errors. Watering down paid, leave instead of expanding it, is not good.

Second, the bill unfairly limits economic relief for low-income and vulnerable Americans. The cash payments are constructed as an advance tax credit for earnings this year. The payments are already meager at $1,200 per individual, $2,400 for a married filing joint couple, and $500 per qualifying child. And not only are these payments zeroed out for those with negligible income, working class folks can’t even get the full benefits if they make under about $24,000 (filing single) or about $48,000 (married filing jointly). These payments are structured very similarly like the President Bush stimulus checks in 2008, but since then, the large increase in the standard deduction from the 2017 Republican tax bill has changed the structure of the individual tax code enough that these income tests are untenable for immediate relief.

Speaker Pelosi and Leader Schumer have responded to the Senate Republican proposal with a set a values that they will uphold during the negotiations and we cheer their effort to get a better deal for working Americans and small businesses.

Regardless of the outcome of a Phase 3 deal there will need to be more done by Congress. Phases 4, 5, and even 6 will be critical as the crisis changes over time and the economic situation evolves. Trillions will be needed to hold employers and workers harmless for an economic catastrophe that is not their fault.

Federal Reserve Actions

The Federal Reserve is at it again. Last night, they issued a press release letting us know that the discount window provisions they announced on Sunday, March 15th are working well. This is a standing window available to banks’ access to funds to cover overnight reserve requirements. Bank reserves are held as a requirement to back deposit liabilities that banks hold. Overnight funds from the Fed are a backstop, not usually used by banks. In fact, there is a bit of a stigma for using this window because in the past it was a sign of balance sheet weakness. To combat that perception, the nation’s major banks issued a statement saying they have ALL accessed the window. This is a signal to let investors know that there are no banks desperate to acquire any form of capital, that their balance sheets are strong, that all the stress testing done since the Global Financial Crisis has made good.

Even with this positive review, the amount of support that the Fed is giving to financial markets really is far broader than even what we saw during the financial crisis. Having gone through that crisis on a day-by-day and hour-by-hour basis, I thought we would never breach that playbook. But we will. Just look at this schedule of the Fed purchases of agency (i.e., Fannie Mae and Freddie Mac) mortgage-backed securities: billions and billions of purchases in just one day.

Today the Fed expanded its new Money Market Mutual Fund Liquidity Facility (MMLF) to provide support for state and municipal debt held by money market funds. As credit risks surged, money markets mutual funds have faced redemptions as holders of these funds withdrew their money. In the process, the funds must sell certain assets to make good on those redemptions. One class of assets they are selling is municipal bonds. By providing liquidity to support the financing of municipal debt, they can stabilize an important corner of money market funds.

Next up today, the Fed coordinated an enhancement to dollar swap lines with several central banks by undertaking swaps for US dollars on a daily basis for all 7-day maturities. They will continue to undertake 84-day maturities on a weekly basis. This is meant to ensure that US dollars are available for financial transactions needed for funding. What does that mean for us? This suggests that there are so many demands for US dollars given the heightened volume of trading in financial markets, that this facility will help to mitigate disruptions that could occur simply because a buyer cannot get access to the right currency.

Also today, the Fed announced that they are increasing the amount of purchases of repos, a key overnight financial instrument that helps short-term funding for investors. Usually this market is roughly $4 trillion in size. Now the Fed’s interventions will amount to $1 trillion. More on this market next week.

It is another indication of market stress and is as important to consumers and businesses as it is for those investors doing transactions in financial markets. Why? Because consumers and businesses rely on functioning credit markets for any interaction we have with a financial twist. Lack of liquidity for basic securities like US Treasury bonds cascades to other financial products like mortgages.


We will get more data on the economy, but most importantly the challenges confronting workers and families are acute. You may observe that what the Fed is doing seems methodical – there is a playbook; they know how to combat crises. Certainly not to knock our great democracy, but we do not have a similar crisis playbook for fiscal initiatives. A US Treasury Department website like the Fed’s would be helpful where each day we can see a set of actions being taken to combat, hold back, stop the job losses because of a pandemic. What about the US Department of Commerce? Where is the “unusual and exigent circumstances” approach? What about a Ken Feinberg Worker Compensation Fund, like what we had during 9/11 and the BP Oil Spill? Congress can authorize to take funds from the US Treasury and request that Ken Feinberg design it. We need the full confidence that the federal government is addressing this crisis head on. Right now, the approach on the fiscal side is diffuse and piecemeal.