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| How the Fed’s Magic Money Machine Will Turn $454 Billion Into $4 Trillion | How the Fed’s Magic Money Machine Will Turn $454 Billion Into $4 Trillion |
| (about 4 hours later) | |
| Treasury Secretary Steven Mnuchin has a favorite talking point: With the Federal Reserve’s help, the government will turn a $500 billion spending package working its way through Congress into a $4 trillion booster shot for the United States economy. | Treasury Secretary Steven Mnuchin has a favorite talking point: With the Federal Reserve’s help, the government will turn a $500 billion spending package working its way through Congress into a $4 trillion booster shot for the United States economy. |
| How, you might ask, does that figure? | How, you might ask, does that figure? |
| The answer lies in the central bank’s emergency lending authorities, given to it by the Federal Reserve Act. When the Fed declares that circumstances are unusual and exigent, and Treasury signs off, it can set up special programs that essentially buy debt from — or extend loans to — businesses large and small. | The answer lies in the central bank’s emergency lending authorities, given to it by the Federal Reserve Act. When the Fed declares that circumstances are unusual and exigent, and Treasury signs off, it can set up special programs that essentially buy debt from — or extend loans to — businesses large and small. |
| The Fed could simply print the money to back that lending, but it avoids taking on credit risk, so it asks for Treasury funding to insure against losses. But those taxpayer dollars can be leveraged: Because the Fed expects most borrowers to pay back, it does not need one-for-one support. As a result, a mere $10 billion from Treasury can prop up $100 billion in Fed lending. And voilà — the $454 billion Congress dedicated to Fed programs in the aid bill can be multiplied many times. A separate $46 billion in the package will go to specific industries. | The Fed could simply print the money to back that lending, but it avoids taking on credit risk, so it asks for Treasury funding to insure against losses. But those taxpayer dollars can be leveraged: Because the Fed expects most borrowers to pay back, it does not need one-for-one support. As a result, a mere $10 billion from Treasury can prop up $100 billion in Fed lending. And voilà — the $454 billion Congress dedicated to Fed programs in the aid bill can be multiplied many times. A separate $46 billion in the package will go to specific industries. |
| This is how the mechanics work and who might get the money: | This is how the mechanics work and who might get the money: |
| Congress allotted at least $454 billion to the Treasury specifically to support Fed programs. It attached a few strings — for instance, companies that get direct loans backed by Treasury funding could be prevented from paying out dividends or buying back shares. Mr. Mnuchin is also required to push the Fed to set up specific programs, including one that would help medium-sized businesses. | Congress allotted at least $454 billion to the Treasury specifically to support Fed programs. It attached a few strings — for instance, companies that get direct loans backed by Treasury funding could be prevented from paying out dividends or buying back shares. Mr. Mnuchin is also required to push the Fed to set up specific programs, including one that would help medium-sized businesses. |
| Another $46 billion in the legislation will go to specific industries, including airlines. The Fed won’t be involved in that set of loans. | Another $46 billion in the legislation will go to specific industries, including airlines. The Fed won’t be involved in that set of loans. |
| The Treasury and the Fed will work together to decide how the $454 billion should be deployed. The central bank designs and runs the programs, but Treasury consults on the broad-brush outline and must sign off on any plan. | The Treasury and the Fed will work together to decide how the $454 billion should be deployed. The central bank designs and runs the programs, but Treasury consults on the broad-brush outline and must sign off on any plan. |
| The Fed has already announced a number of emergency lending programs in recent weeks, including one that supports corporate debt issuers and another meant to keep money flowing in the market for short-term business loans. It has said it will establish a “Main Street” lending facility for small businesses, though details on what that will look like are scant. | The Fed has already announced a number of emergency lending programs in recent weeks, including one that supports corporate debt issuers and another meant to keep money flowing in the market for short-term business loans. It has said it will establish a “Main Street” lending facility for small businesses, though details on what that will look like are scant. |
| The Fed is also indirectly helping the market for local debt through one facility, and some economists have speculated that it could go further by actually buying state and local bonds in an emergency measure. The legislation instructs Mr. Mnuchin to push for a program that supports state and local borrowing, something lawmakers have long clamored for. | The Fed is also indirectly helping the market for local debt through one facility, and some economists have speculated that it could go further by actually buying state and local bonds in an emergency measure. The legislation instructs Mr. Mnuchin to push for a program that supports state and local borrowing, something lawmakers have long clamored for. |
| The Treasury fund used to back those efforts contains just $94 billion, so congressionally-approved money would pave the way for serious scaling up. | The Treasury fund used to back those efforts contains just $94 billion, so congressionally-approved money would pave the way for serious scaling up. |
| Depending on how much the money is leveraged — which in turn depends on the credit risk of the programs it supports — it could result in trillions of temporary support for companies and local governments. Mr. Mnuchin has repeatedly estimated the injection at about $4 trillion. (It could be bigger now: When he made that estimate, the congressional allotment was $425 billion.) | Depending on how much the money is leveraged — which in turn depends on the credit risk of the programs it supports — it could result in trillions of temporary support for companies and local governments. Mr. Mnuchin has repeatedly estimated the injection at about $4 trillion. (It could be bigger now: When he made that estimate, the congressional allotment was $425 billion.) |
| It is worth noting that this setup will not necessarily pump $3.5 trillion of monopoly money into the economy permanently. | It is worth noting that this setup will not necessarily pump $3.5 trillion of monopoly money into the economy permanently. |
| When it makes a loan, the Fed temporarily sends fresh dollars out into the financial system. But that loan must be paid back with interest, sucking the funds back out. When the Fed buys bonds using its emergency powers, it takes an asset out of the system in exchange for central bank cash. | When it makes a loan, the Fed temporarily sends fresh dollars out into the financial system. But that loan must be paid back with interest, sucking the funds back out. When the Fed buys bonds using its emergency powers, it takes an asset out of the system in exchange for central bank cash. |
| “When it comes due, cash essentially has to be taken out of the private banking system and given back to the Fed,” said Matthew Luzzetti, chief United States economist at Deutsche Bank. | “When it comes due, cash essentially has to be taken out of the private banking system and given back to the Fed,” said Matthew Luzzetti, chief United States economist at Deutsche Bank. |
| That said, money can be hard to fully snuff out once it is created. The Fed swelled its asset holdings significantly during and after the 2008 financial crisis. It struggled to shrink them again, leaving outstanding reserves — central bank deposits that it had used to buy bonds — permanently higher. | That said, money can be hard to fully snuff out once it is created. The Fed swelled its asset holdings significantly during and after the 2008 financial crisis. It struggled to shrink them again, leaving outstanding reserves — central bank deposits that it had used to buy bonds — permanently higher. |
| The Fed is legally prohibited from lending to bankrupt companies, and it avoids lending to risky businesses without backup. That’s partly because it is afraid of losing money on loans and facing political repercussions, lawyers who study the matter say. | The Fed is legally prohibited from lending to bankrupt companies, and it avoids lending to risky businesses without backup. That’s partly because it is afraid of losing money on loans and facing political repercussions, lawyers who study the matter say. |
| That may seem silly. The Fed is no ordinary bank: It creates money at the touch of a digital button. If it is not paid back, it will not go out of business. But if it took a significant loss, it would mean that the central bank had tried to prop up failing companies rather than simply striving to improve market functioning amid a temporary cash crunch. Keeping the gears of commerce chugging is the Fed’s job. Picking winners and losers is not. | That may seem silly. The Fed is no ordinary bank: It creates money at the touch of a digital button. If it is not paid back, it will not go out of business. But if it took a significant loss, it would mean that the central bank had tried to prop up failing companies rather than simply striving to improve market functioning amid a temporary cash crunch. Keeping the gears of commerce chugging is the Fed’s job. Picking winners and losers is not. |
| “Losses look really, really bad,” Kathryn Judge, a professor at Columbia Law School, said in an email. “Most people are comfortable with the Fed providing liquidity, even a lot of it, to keep markets functioning.” | “Losses look really, really bad,” Kathryn Judge, a professor at Columbia Law School, said in an email. “Most people are comfortable with the Fed providing liquidity, even a lot of it, to keep markets functioning.” |
| Updated June 24, 2020 | |
| Scientists around the country have tried to identify everyday materials that do a good job of filtering microscopic particles. In recent tests, HEPA furnace filters scored high, as did vacuum cleaner bags, fabric similar to flannel pajamas and those of 600-count pillowcases. Other materials tested included layered coffee filters and scarves and bandannas. These scored lower, but still captured a small percentage of particles. | |
| A commentary published this month on the website of the British Journal of Sports Medicine points out that covering your face during exercise “comes with issues of potential breathing restriction and discomfort” and requires “balancing benefits versus possible adverse events.” Masks do alter exercise, says Cedric X. Bryant, the president and chief science officer of the American Council on Exercise, a nonprofit organization that funds exercise research and certifies fitness professionals. “In my personal experience,” he says, “heart rates are higher at the same relative intensity when you wear a mask.” Some people also could experience lightheadedness during familiar workouts while masked, says Len Kravitz, a professor of exercise science at the University of New Mexico. | A commentary published this month on the website of the British Journal of Sports Medicine points out that covering your face during exercise “comes with issues of potential breathing restriction and discomfort” and requires “balancing benefits versus possible adverse events.” Masks do alter exercise, says Cedric X. Bryant, the president and chief science officer of the American Council on Exercise, a nonprofit organization that funds exercise research and certifies fitness professionals. “In my personal experience,” he says, “heart rates are higher at the same relative intensity when you wear a mask.” Some people also could experience lightheadedness during familiar workouts while masked, says Len Kravitz, a professor of exercise science at the University of New Mexico. |
| The steroid, dexamethasone, is the first treatment shown to reduce mortality in severely ill patients, according to scientists in Britain. The drug appears to reduce inflammation caused by the immune system, protecting the tissues. In the study, dexamethasone reduced deaths of patients on ventilators by one-third, and deaths of patients on oxygen by one-fifth. | The steroid, dexamethasone, is the first treatment shown to reduce mortality in severely ill patients, according to scientists in Britain. The drug appears to reduce inflammation caused by the immune system, protecting the tissues. In the study, dexamethasone reduced deaths of patients on ventilators by one-third, and deaths of patients on oxygen by one-fifth. |
| The coronavirus emergency relief package gives many American workers paid leave if they need to take time off because of the virus. It gives qualified workers two weeks of paid sick leave if they are ill, quarantined or seeking diagnosis or preventive care for coronavirus, or if they are caring for sick family members. It gives 12 weeks of paid leave to people caring for children whose schools are closed or whose child care provider is unavailable because of the coronavirus. It is the first time the United States has had widespread federally mandated paid leave, and includes people who don’t typically get such benefits, like part-time and gig economy workers. But the measure excludes at least half of private-sector workers, including those at the country’s largest employers, and gives small employers significant leeway to deny leave. | The coronavirus emergency relief package gives many American workers paid leave if they need to take time off because of the virus. It gives qualified workers two weeks of paid sick leave if they are ill, quarantined or seeking diagnosis or preventive care for coronavirus, or if they are caring for sick family members. It gives 12 weeks of paid leave to people caring for children whose schools are closed or whose child care provider is unavailable because of the coronavirus. It is the first time the United States has had widespread federally mandated paid leave, and includes people who don’t typically get such benefits, like part-time and gig economy workers. But the measure excludes at least half of private-sector workers, including those at the country’s largest employers, and gives small employers significant leeway to deny leave. |
| So far, the evidence seems to show it does. A widely cited paper published in April suggests that people are most infectious about two days before the onset of coronavirus symptoms and estimated that 44 percent of new infections were a result of transmission from people who were not yet showing symptoms. Recently, a top expert at the World Health Organization stated that transmission of the coronavirus by people who did not have symptoms was “very rare,” but she later walked back that statement. | So far, the evidence seems to show it does. A widely cited paper published in April suggests that people are most infectious about two days before the onset of coronavirus symptoms and estimated that 44 percent of new infections were a result of transmission from people who were not yet showing symptoms. Recently, a top expert at the World Health Organization stated that transmission of the coronavirus by people who did not have symptoms was “very rare,” but she later walked back that statement. |
| Touching contaminated objects and then infecting ourselves with the germs is not typically how the virus spreads. But it can happen. A number of studies of flu, rhinovirus, coronavirus and other microbes have shown that respiratory illnesses, including the new coronavirus, can spread by touching contaminated surfaces, particularly in places like day care centers, offices and hospitals. But a long chain of events has to happen for the disease to spread that way. The best way to protect yourself from coronavirus — whether it’s surface transmission or close human contact — is still social distancing, washing your hands, not touching your face and wearing masks. | Touching contaminated objects and then infecting ourselves with the germs is not typically how the virus spreads. But it can happen. A number of studies of flu, rhinovirus, coronavirus and other microbes have shown that respiratory illnesses, including the new coronavirus, can spread by touching contaminated surfaces, particularly in places like day care centers, offices and hospitals. But a long chain of events has to happen for the disease to spread that way. The best way to protect yourself from coronavirus — whether it’s surface transmission or close human contact — is still social distancing, washing your hands, not touching your face and wearing masks. |
| A study by European scientists is the first to document a strong statistical link between genetic variations and Covid-19, the illness caused by the coronavirus. Having Type A blood was linked to a 50 percent increase in the likelihood that a patient would need to get oxygen or to go on a ventilator, according to the new study. | A study by European scientists is the first to document a strong statistical link between genetic variations and Covid-19, the illness caused by the coronavirus. Having Type A blood was linked to a 50 percent increase in the likelihood that a patient would need to get oxygen or to go on a ventilator, according to the new study. |
| The unemployment rate fell to 13.3 percent in May, the Labor Department said on June 5, an unexpected improvement in the nation’s job market as hiring rebounded faster than economists expected. Economists had forecast the unemployment rate to increase to as much as 20 percent, after it hit 14.7 percent in April, which was the highest since the government began keeping official statistics after World War II. But the unemployment rate dipped instead, with employers adding 2.5 million jobs, after more than 20 million jobs were lost in April. | The unemployment rate fell to 13.3 percent in May, the Labor Department said on June 5, an unexpected improvement in the nation’s job market as hiring rebounded faster than economists expected. Economists had forecast the unemployment rate to increase to as much as 20 percent, after it hit 14.7 percent in April, which was the highest since the government began keeping official statistics after World War II. But the unemployment rate dipped instead, with employers adding 2.5 million jobs, after more than 20 million jobs were lost in April. |
| Common symptoms include fever, a dry cough, fatigue and difficulty breathing or shortness of breath. Some of these symptoms overlap with those of the flu, making detection difficult, but runny noses and stuffy sinuses are less common. The C.D.C. has also added chills, muscle pain, sore throat, headache and a new loss of the sense of taste or smell as symptoms to look out for. Most people fall ill five to seven days after exposure, but symptoms may appear in as few as two days or as many as 14 days. | Common symptoms include fever, a dry cough, fatigue and difficulty breathing or shortness of breath. Some of these symptoms overlap with those of the flu, making detection difficult, but runny noses and stuffy sinuses are less common. The C.D.C. has also added chills, muscle pain, sore throat, headache and a new loss of the sense of taste or smell as symptoms to look out for. Most people fall ill five to seven days after exposure, but symptoms may appear in as few as two days or as many as 14 days. |
| If air travel is unavoidable, there are some steps you can take to protect yourself. Most important: Wash your hands often, and stop touching your face. If possible, choose a window seat. A study from Emory University found that during flu season, the safest place to sit on a plane is by a window, as people sitting in window seats had less contact with potentially sick people. Disinfect hard surfaces. When you get to your seat and your hands are clean, use disinfecting wipes to clean the hard surfaces at your seat like the head and arm rest, the seatbelt buckle, the remote, screen, seat back pocket and the tray table. If the seat is hard and nonporous or leather or pleather, you can wipe that down, too. (Using wipes on upholstered seats could lead to a wet seat and spreading of germs rather than killing them.) | If air travel is unavoidable, there are some steps you can take to protect yourself. Most important: Wash your hands often, and stop touching your face. If possible, choose a window seat. A study from Emory University found that during flu season, the safest place to sit on a plane is by a window, as people sitting in window seats had less contact with potentially sick people. Disinfect hard surfaces. When you get to your seat and your hands are clean, use disinfecting wipes to clean the hard surfaces at your seat like the head and arm rest, the seatbelt buckle, the remote, screen, seat back pocket and the tray table. If the seat is hard and nonporous or leather or pleather, you can wipe that down, too. (Using wipes on upholstered seats could lead to a wet seat and spreading of germs rather than killing them.) |
| If you’ve been exposed to the coronavirus or think you have, and have a fever or symptoms like a cough or difficulty breathing, call a doctor. They should give you advice on whether you should be tested, how to get tested, and how to seek medical treatment without potentially infecting or exposing others. | If you’ve been exposed to the coronavirus or think you have, and have a fever or symptoms like a cough or difficulty breathing, call a doctor. They should give you advice on whether you should be tested, how to get tested, and how to seek medical treatment without potentially infecting or exposing others. |
| If the Fed does take on a risk but Treasury backs at least the first round of losses, it means the elected government is agreeing to the plan. That puts a veneer of accountability on the whole enterprise, giving unelected central bankers some cover. | If the Fed does take on a risk but Treasury backs at least the first round of losses, it means the elected government is agreeing to the plan. That puts a veneer of accountability on the whole enterprise, giving unelected central bankers some cover. |
| While the $46 billion in Treasury-determined funding will go to specific industries, the Fed-tied money is likely to be used more broadly. | While the $46 billion in Treasury-determined funding will go to specific industries, the Fed-tied money is likely to be used more broadly. |
| So far, the Fed’s emergency programs benefit wide groups: The Fed is buying high-grade corporate bonds, for instance, because such debt had become hard to issue or renew, threatening to choke off funding to a broad range of companies. | So far, the Fed’s emergency programs benefit wide groups: The Fed is buying high-grade corporate bonds, for instance, because such debt had become hard to issue or renew, threatening to choke off funding to a broad range of companies. |
| The goal is to keep critical markets functioning through the coronavirus crisis. | The goal is to keep critical markets functioning through the coronavirus crisis. |
| “The government has stepped into the breach in a dramatic way, and has made Treasury the Federal Reserve’s deputy,” said Peter Conti-Brown, a Fed historian at the Wharton School of the University of Pennsylvania. “The Federal Reserve has become your friendly neighborhood loan officer.” | “The government has stepped into the breach in a dramatic way, and has made Treasury the Federal Reserve’s deputy,” said Peter Conti-Brown, a Fed historian at the Wharton School of the University of Pennsylvania. “The Federal Reserve has become your friendly neighborhood loan officer.” |
| Since you asked. When we say that the Fed “essentially” buys debt and makes loans with its emergency lending programs, it’s because the way many of the operations are structured is a bit complicated. | Since you asked. When we say that the Fed “essentially” buys debt and makes loans with its emergency lending programs, it’s because the way many of the operations are structured is a bit complicated. |
| Legally, the Fed is not allowed to buy debt that is not backed by the government, but in emergencies it can do so as long as it secures its purchases. To achieve a degree of separation, it sets up a special purpose vehicle and then lends into it — with a layer of money from Treasury providing the needed security. The vehicle then snaps up bonds or makes loans to the private sector. | Legally, the Fed is not allowed to buy debt that is not backed by the government, but in emergencies it can do so as long as it secures its purchases. To achieve a degree of separation, it sets up a special purpose vehicle and then lends into it — with a layer of money from Treasury providing the needed security. The vehicle then snaps up bonds or makes loans to the private sector. |
| It’s also worth noting that it is a big deal in the wonky world of central banking that Congress is poised to explicitly give the Fed so much backup. | It’s also worth noting that it is a big deal in the wonky world of central banking that Congress is poised to explicitly give the Fed so much backup. |
| “I know of no other time that a legislature has delegated to a central bank such far-reaching authority to allocate credit,” Ms. Judge wrote in an email. | “I know of no other time that a legislature has delegated to a central bank such far-reaching authority to allocate credit,” Ms. Judge wrote in an email. |