by Pam Martens and Russ Martens
Wall Street on Parade
Yesterday, U.S. Treasury Secretary Steve Mnuchin stunned markets by demanding in a letter to Federal Reserve Chairman Jerome Powell that the Fed return Treasury funds that are backstopping the bulk of its emergency lending programs and wind down these programs by year’s end. Adding further shock, the Fed rebuked the idea with its own statement, saying this:
“The Federal Reserve would prefer that the full suite of emergency facilities established during the coronavirus pandemic continue to serve their important role as a backstop for our still-strained and vulnerable economy.”
At issue in this newly-emerged war between Treasury and the Fed is $454 billion, $340 billion of which has yet to be accounted for. The process has played out as follows:
On March 27, 2020 President Trump signed the CARES Act emergency stimulus plan into law. That law instructed the Treasury Secretary to make $454 billion available to the Federal Reserve for emergency lending facilities. The funds were to make $10 of Fed emergency funding available for each $1 from the taxpayer. The taxpayers’ money was to be used as loss-absorbing capital. The $454 billion would have supported up to $4.54 trillion in lending by the Fed.