EDITOR NOTE: Is House Financial Services Chair Maxine Waters completely missing the point--or, did she accidentally stumble on a very critical point, entering a sorely salient position, albeit through the back door? Earlier this week, she criticized the Fed and Treasury Department, stating their efforts to help small businesses and households in the last stimulus fell short; that more can be done. Pointing to the Fed, Waters seems to be confusing monetary policy with fiscal policy. Or, is there really a difference these days? She also highlighted the incidental consequences of wealth inequality rising upon the aftermath of the stimulus. Or, how incidental was this “wealth transfer,” really? Where she gets it wrong is that more money printing is the solution. That would only worsen the situation. Maybe she doesn’t get it. Maybe she does, knowing that it’ll satisfy her constituents. Do most Americans “get it”?
House Financial Services Chair Maxine Waters on Tuesday criticized the Federal Reserve and Treasury Department for failing to use more of the coronavirus relief funds under their control.
Waters, at a hearing with Fed Chair Jerome Powell and Treasury Secretary Steven Mnuchin, acknowledged that the central bank has expanded eligibility for several of its emergency lending programs. But she lamented that only a small fraction of the available funds had been used under programs designed for midsize businesses and for state and local governments.
“This is unacceptable,” the California Democrat said. “Let me be blunt: This pandemic response has fallen badly short. … Your work to address this crisis doesn’t stop when the stock market recovers from its losses. Your mandate is to help hardworking individuals and families who are suffering.”
Waters’ criticism came as Powell reiterated that the central bank only has power to lend money, rather than spend it, and highlighted the need for Congress to pass another round of economic relief. He also emphasized that the mere availability of Fed loans has allowed both businesses and municipalities to borrow more cheaply.
“The facilities are only that — a backstop,” he said. “They are designed to support the functioning of private markets, not to replace them.”
“Many borrowers will benefit from these programs, as will the overall economy, but for others, a loan that could be difficult to repay might not be the answer,” he said. “In these cases, direct fiscal support may be needed.”
Still, Powell once again pledged that the Fed will continue supporting the economy with low rates and other tools for as long as it takes for the jobs market to fully recover.
Mnuchin said in response to a question from Waters that he would be willing to lower the minimum loan amount under the Main Street business lending program, currently set at $250,000.
“I’d be fine lowering that to $100,000 and will consult with Chair Powell afterwards on lowering it,” he said.
But Powell said the Paycheck Protection Program is better suited to small companies because the government-backed loans can be converted into grants. He said if the Fed were to lend to the smallest businesses in the country, that would require an entirely new design.
“There’s very little demand in the facility [for loans] below $1 million,” the Fed chief said. “So, this would have to be a different kind of facility. … It would require a facility built from the ground that would be quite different.”
“Trying to underwrite the credit of hundreds of thousands of small businesses would be very difficult,” he added. “I think PPP is a better way to address that space in the market.”
Originally posted on Politico