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Wednesday, December 2, 2020

Revival Of Emergency Programs And Stimulus Check 2 A Possibility

Mnuchin’s decision of letting lending programs of the Federal Reserve expire on Dec. 31 can reduce the ability of the central bank to restore the country’s financial system.

But experts familiar with the situation believe that the Fed can lend even if a shocking event hits the system.

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Mnuchin declared on Thursday that the extension of the Fed’s program using funds of the CARES Act will not happen. These programs helped the Fed to lend nearly $4.5 trillion to several financial markets and bolster on stimulus check 2. Mnuchin argued that Congress wanted the expiration of funds.

The Fed however disagreed with the decision stating that the continuation of these emergency facilities will help their role as the backstop for this vulnerable economy.

Can The Federal Reserve Act As A Backstop Anymore?

But people are putting their faiths in the administration of Biden to restore these programs by going into a new deal with the Federal Reserve.

Stimulus Check 2
Stimulus Check 2
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Around $25 billion in existing equity present in the Treasury will be left for the Fed via the funds of CARES Act. Additionally, around $50 billion is present in the Fund of Exchange Stabilization. Using the leverage of 10-to-1 the Fed would get lending authority of $750 billion to act as a backstop in times of disruption.

Congress approval is not necessary. There should be a revised agreement between the Governors of the Federal Reserve and the Treasury Secretary.

So far, the Fed has loaned only $25 billion via the programs which are small in comparison to $750 billion. It would require a new shock for the financial system to get into any agreement regarding the restarting of the programs. The Fed is hoping to avoid this type of shock and has asked for reinstating the programs for that purpose.

Where Could Additional Funds Come From To Go For Stimulus Check 2?

Return of the $429 billion to a general fund from the Reserve can help Congress to bolster unemployment benefits, additional loans, and grants to businesses. There is also the additional $135 billion that is unused and funded from the program of Paycheck Protection. A new stimulus check 2 might include portions of this unused money from Congress. But a large portion of this money is funded.

The midsize businesses appear to be big losers as they have only started taking loans from the Fed’s lending facility. Now, the terms of this facility have been amended and so it allows only smaller loans of around $100,000.

The U.S. C.O.C has criticized Mnuchin’s move saying that a termination of the Reserve’s liquidity programs unnecessarily and prematurely blocks the incoming administration’s hands. It also downs the curtain on necessary liquidity options that businesses need the most right now.

Mnuchin extended three programs that backstopped money markets and commercial paper for ninety days. These programs don’t use CARES Act Funds.

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