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A thread on that thing related to the Federal Reserve that’s holding up the economic relief bill (because explainer threads are my guilty pleasure)
Since the Great Depression, the Fed has authority to launch lending programs under its emergency powers that are aimed at ensuring proper functioning of financial markets. Since 2010 (the Dodd-Frank Act), the Treasury secretary has to sign off on the creation of any programs. 1/x
The Fed likes having financial backing from Treasury to cover losses if borrowers default, because the Fed prints new money rather than “spending” it, so it’s uncomfortable with the optics of losing money. Basically they think elected officials should make spending decisions. 2/x
The Treasury money backing Fed programs comes from the Exchange Stabilization Fund, which is basically a rainy day fund in case bad things happen in the financial system. 3/x
CARES added $454B to that fund to back Fed programs aimed at directing making sure businesses, consumers, states and cities could borrow cheaply/that debt markets wouldn’t freeze up. Here’s an old thread that explains how those work. 4/x https://twitter.com/vtg2/status/1248630242803056640
Treasury Secretary Mnuchin said earlier this month that the CARES-backed programs were legally supposed to end after 2020 (a legal interpretation that’s been widely disputed). But it’s his decision regardless so they’re ending this month. 5/x
Sen. Toomey, who has always been skeptical of the Fed playing too big of a role in the economy but has supported their emergency actions, wants these programs to definitively end bc he thinks Dems will use the programs to give overly generous loans to businesses and states. 6/x
But there was still some non-CARES money in the ESF leftover from before, so Republicans are worried that just cutting off CARES money won’t be enough because the new Treasury secretary (Janet Yellen) could still use other funds to restart them. 7/x
So now there’s a whole fight over whether/how the programs should permanently end, & whether Toomey’s specific choice of language would restrict the Fed’s powers well beyond just the CARES-backed programs, requiring congressional approval for most emergency actions. 8/x
So this is what’s unresolved. Will Dems agree to end the CARES-backed Fed programs in exchange for the relief bill? Will the Fed’s powers be restricted in any way? These are important ?s about the Fed’s role and its freedom to aid the economy without congressional action. 9/9
