The Fed Unlocks Trillions of Dollars!

By: Robert Aro

What happened to the trillions of dollars allocated for the CARES Act emergency lending facilities? In a statement he gave to the US Senate on Tuesday, and one of his last public statements for the year, Federal Reserve chair Jerome Powell honored Secretary Mnuchin’s request to terminate five of the lending programs, confirming:

the Federal Reserve will return the unused portion of funds allocated to the lending programs that are backstopped by the CARES Act in connection with their termination at the end of this year. 

Powell then provided a statement on each of the programs and how much of the funds have been used:

The Main Street Lending Program allows up to $600 billion in loans granted to small to medium size businesses (and nonprofits), an amount nearly the size of the initial Troubled Asset Relief Program during the Great Recession! As of November 25, nearly:

600 lenders representing more than half of U.S. banking assets have registered to participate in the program, and the program has purchased just under $6 billion in participations.

The Primary Market Corporate Credit Facility (PMCCF) and the Secondary Market Corporate Credit Facility (SMCCF) hold $75 billion to purchase bonds directly from business in the primary market, or on the exchange in the secondary market. Surprisingly:

there have not been any PMCCF transactions, nor have any indications of interest been received. While the PMCCF has not purchased any bonds since it opened.

As for the SMCCF, the value of the corporate bonds and corporate exchange traded funds now stands at $13.6 billion.

The Municipal Liquidity Facility could have purchased an astounding $500 billion in state and local debt. But so far only two issuances have been made, for a total of $1.7 billion.

The last of the five, soon to be discontinued, programs is the Term Asset-Backed Securities Loan Facility, able to provide up to $100 billion in loans for those who own student loans, credit card debt, and auto loans. These debts are not normally owned by most people on “main street.” Nonetheless, only $3.8 billion of loans have been granted.

To date, the five programs lent out a total of $25.1 billion, of what could have been $1.275 trillion of support programs. And while it is 2020, and the anticapitalism mentality remains strong, we should feel lucky that “only” $25.1 billion was created to buy assets such as corporate bonds. If the programs were fully utilized, an extra trillion dollars would have been added to the money supply, the ends for which we’d never know.

Now, imagine if $500 billion was given to buy state, city, and local debt across the country. Perhaps the money would have gone to build a bridge or road, or maybe just to pay salaries or pensions. Regardless, we must be reminded it all amounts to collectivist decision-making; decisions by the few on the behalf of the many. Whether or not the money is used is not as unsettling as the fact these individuals have the power to create and spend unfathomable sums of money in the first place.

While it could have been worse, it’s still not good. As Chair Powell praised the Fed’s action because they:

helped unlock almost $2 trillion of funding to support businesses large and small, nonprofits, and state and local governments since April.

He doesn’t reconcile this amount. But it likely includes some $525 billion of forgivable loans from the Paycheck Protection Program, some of which went to Congress and their family members, as reported by the Washington Post; nor does he mention the $3 billion increase to the Fed’s balance sheet, now standing at over $7.2 trillion.

As December begins and the year soon ends, the Fed’s actions have led to many more trillions of dollars injected into the economy, allocated to some and circulated in ways we’ll never know. The central planners and mainstream media appear content, with a covid vaccine on its way, the stock market making new highs and a likely transition in the White House. Of course, we’re in uncharted territory with no escape plan. The problem with inflationism is that is must never end, while the magnitude of the next stimulus, increase to money supply and support programs must now only accelerate.

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