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20 Nov, 2020 16:20

Economists accuse US Treasury secretary of trying to set up crisis for Biden administration, ignoring Mnuchin's Harris donations

Economists accuse US Treasury secretary of trying to set up crisis for Biden administration, ignoring Mnuchin's Harris donations

Out-of-touch economists fear Treasury Secretary Steve Mnuchin’s move to end several pandemic emergency financial programs might trigger a financial crisis – as if the majority of Americans haven’t been experiencing just that.

Mnuchin’s decision to curtail some of the emergency lending programs launched earlier this year to keep the US economy from collapsing in the midst of the Covid-19 pandemic has prominent economists howling, with some framing the move as an act of political vengeance against an incoming Democratic administration.

The Fed’s emergency programs that use Treasury money to buy corporate bonds and municipal debt as well as make loans to midsize businesses will be allowed to expire at the end of 2020, Mnuchin revealed on Friday. At the same time, the Fed will be asked to return unused funds to the Treasury.

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Mnuchin has defended the controversial move by arguing Congress intended for the programs to be time-limited when it passed them as part of the mammoth CARES Act bailout in March. Accordingly, three other emergency programs that did not use CARES Act funding, including a small-business lending program, have been extended for 90 days.

Economist Carl Weinberg insisted there was no “economic rationale” for such a decision given the ongoing coronavirus pandemic that has seen many states re-enter lockdown or impose stricter regulations, suggesting Mnuchin must be motivated by “politics.” In an interview with CNBC’s ‘Squawk Box Europe’ on Friday, he likened the move to removing lifeboats from the Titanic. The doomed ocean liner infamously set sail with only enough lifeboats for less than half of its passengers.

Others, including New York Times economist Paul Krugman, warned that cutting off the programs will trigger a financial crisis by spooking investors – apparently unaware that most of the country is already in a financial crisis.

Even the Fed has complained about Mnuchin’s decision to slow down the ‘money printer’, issuing a rare statement of public disagreement on Friday. “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,” the private central bank stated.

And social media users went wild speculating about the decision, likening it to the salting of the earth after the Roman conquest of Carthage and comparing Mnuchin to a cartoon villain “closing the orphanage during a blizzard just before Xmas” while “throw[ing] the children’s coats and mittens into the furnace.” 

Accusing Mnuchin of “trying to cripple the economy” may sound a bit baffling to the 20 million unemployed Americans for whom the economy is already very much crippled, or the millions of small business owners who’ve been forced to close their doors due to economic shutdowns. The 12 million Americans who are set to lose their unemployment benefits at the end of the year, as well as the millions who will face eviction when a nationwide moratorium expires, are unlikely to shed a tear for the central bankers panicking over a looming cut to their supply of “monetary heroin.” 

And those framing the move as Mnuchin sticking the knife into a Biden-Harris administration ignore the fact that the treasury secretary and his wife actually donated to Harris’ 2016 Senate campaign, as well as two of her runs for California attorney general. It may or may not have been a reward for a job well done, given that she declined to prosecute his bank OneWest for mortgage fraud after California prosecutors allegedly uncovered over 1,000 foreclosure violations in 2013, but the relationship between Mnuchin and Harris is undeniably cozier than the way it's portrayed by some Democratic supporters.

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Mnuchin attempted to tamp down the explosive reaction to his announcement on Friday, arguing there’s more than enough money to plug any economic holes should the ship of state spring a leak. And even the pearl-clutching reports on the move acknowledged an incoming Biden administration would have plenty of leeway to reanimate the emergency lending programs by negotiating a new deal with the Fed. At the same time, the money Mnuchin has ordered returned could theoretically be repurposed for extending unemployment benefits or shoring up disintegrating small businesses – but who needs that when you can bail out an airline or two?

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