Millions of Americans are out of work. Some, like these workers at Mt. Sinai in New York City, are still on the job taking care of very sick people. Photo: Stephanie Keith.
The first phase of the Coronavirus Aid, Relief, and Economic Security (CARES) Act, signed March 6, included $8.3 billion for coronavirus research to develop a vaccine for the virus. The second phase was a $104 billion package focused on paid sick leave and extending unemployment benefits for American workers. The Families First Coronavirus Response Act was signed into law on March 18, 2020.
The third phase of the CARES ACT, signed into law March 26, really upped the ante. It expanded unemployment insurance to self-employed and gig workers that included a $600/week increase in federal UEI benefits for up to 4 months, provided $208 billion in loans to major industries like airlines and hotels. It included $350 billion for the Paycheck Protection Program (PPP) to forgive small businesses their loans if they keep their workers on the payroll through June 30.
The SBA has been swamped with applications for the PPP and banks have already processed $70 billion in SBA loans. The total cost of the CARES ACT is estimated to be $2.2 trillion. Last week, Treasury Secretary Steven Muchin asked Congress to appropriate another $250 billion for the popular PPP program. Meanwhile, more than 10 million Americans have filed unemployment claims since April 1.
According to Wikipedia the CARES Act, is “unprecedented in size and scope” and “the largest-ever economic stimulus package in U.S. history”. The CARES Act more than doubled the $831 billion bailout that saved Wall St. banks in 2009 when millions of Americans lost their homes.
The act does a lot of things people wish the government had done a long time ago. It provides free coronavirus testing for everyone, extends unemployment benefits by 13 weeks and loosens the requirements for collecting unemployment.
And most importantly for the working poor, the act increases food stamps and food security programs like SNAP, and increases funding for Medicaid. The act also will give individual taxpayers $1200 each at a cost of $250 billion.
And all that may not be enough to jumpstart the economy unless the Coronavirus pandemic dissipates pretty soon. Congress is considering a CARES ACT, Phase 4. Republicans are reluctant to act until after the virus peaks. Democrats want to give essential workers hazard pay up to $25,000 each and they have a laundry list of other things they would like to fund like student debt relief, more aid to local governments, and support for social security and pension funds.
The COVID-19 pandemic has provided the country with the biggest cash infusion in U.S. history. The three stimulus packages harken back to a time when things actually got done in Washington. But how is the federal government paying for all this relief?
According to Bloomberg’s Jim Bianco, the Federal Reserve and the Department of the Treasury came up with a scheme that essentially merges them into one organization. “In effect, the Fed is giving the Treasury access to its printing press,” wrote Bianco.
The Treasury Department has created a series of special-purpose vehicles (SPV). Think of it like a bunch of SUVs stuffed with cash driving around the economy and buying up all sorts of financial assets, toxic and otherwise.
“This means that, in the extreme, the administration would be free to use its control, not the Fed’s control, of these SPVs to instruct the Fed to print more money so it could buy securities and hand out loans in an effort to ramp financial markets higher going into the election,” wrote Bianco.
The sweet part of this arrangement for the Treasury is that while the Fed holds the SPV bonds, the Treasury pays no interest on them and any profit it makes from all the stimulus loans goes back to itself.
According to Economist Ellen Brown, the $150 billion the Federal Reserve will spend buying municipal bonds to help cities and states pay for what they have spent fighting the virus, may be easy money but it is not free to those governments.
“There is no provision for reducing the interest rate on the bonds, which typically runs at 3 or 4 percent plus hefty bond dealer fees and foregone taxes on tax-free issues. Unlike the federal government, municipal governments will not be getting a rebate on the interest on their bonds,” wrote Brown.
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This article was produced with support from Ethnic Media Services and the Blue Shield of California Foundation
