International Forecaster Weekly

TREASURY STILL HOLDING $340 BILLION IN CARES ACT FUNDING - Just $114 Billion Has Been Handed Over to the Fed

However, according to the Fed's December 10th H.4.1 report, almost 9 months after the CARES Act became law, Treasury has handed off to the Fed only $114 billion of the authorized $454 billion total. 

Cares Act

Guest Writer | December 12, 2020

By Dave Allen for Discount Gold & Silver

Under the historic, bipartisan CARES Act, passed by Congress and signed into law in late March, the plan was for the Treasury Department to allocate $454 billion of taxpayer funds to the Federal Reserve.

The Fed, in turn, was to leverage that money by 10 times, or roughly $4.54 trillion, to preserve the economy - particularly by keeping workers on the payroll and businesses surviving until the pandemic was brought under control.

Fed Chair Jerome Powell explained the plan like this: "We're required to get full security for our loans so that we don't lose money. 

"So, the Treasury puts up money as we estimate what the losses might be...Effectively $1 of loss absorption of backstop from Treasury is enough to support $10 of loans."

However, according to the Fed's December 10th H.4.1 report, almost 9 months after the CARES Act became law, Treasury has handed off to the Fed only $114 billion of the authorized $454 billion total. 

That leaves $340 billion unused - and unaccounted for. Notably, the figure hasn't changed since late June, 6 months ago.

Yesterday's H.4.1 release shows that the $114 billion the Fed has received to date from the Treasury has been allocated as follows: 

         $10 billion to the Commercial Paper Funding Facility (CPFF); 

         $37.5 billion to the Corporate Credit Facility; 

         $37.5 billion to the Main Street Facility; 

         $17.5 billion to the Municipal Liquidity Facility; 

         $10 billion to the Term Asset-Backed Securities Loan Facility (TALF II); and 

         $1.5 billion to the Money Market Mutual Fund Liquidity Facility.

As Pam and Russ Martens of Wall Street on Parade point out, most of those programs are helping bigger businesses, not smaller ones, as the program envisioned. 

In a recent newsletter, the Martens wrote, "The one program actually called the 'Main Street Facilities" bears little resemblance to the kind of help actual Main Street businesses need right now." 

They add, "Minimum loan amounts in the Fed's Main Street program are $250,000, while many businesses on real American Main Streets would be highly reluctant to take a loan of that size, given the likely prospect right now that their business won't make it."

They argue - and I agree - what these businesses need more of are Paycheck Protection Plan loans that are forgiven if they keep their workers on payroll. 

That would allow upwards of hundreds of thousands of workers to avoid eviction and help small apartment building landlords stay out of foreclosure early next year. The PPP ended August 8th. 

And despite at least 100,000 businesses permanently closed and over 10 million workers still out of a job, Congress hasn't been able to put aside partisan differences this time around and pass a new loan/forgiveness program.

The wreckage has been particularly felt by owners of restaurants, bars and clothing and home décor retailers. 

According to Yelp, as of August 31st, there had been 32,109 restaurant closures with 19,590 (61%) of those indicated as permanent. At the same time, 6,451 bars had closed, 3,499 of them permanent (54%).

Among retailers, since the end of August, there have been 30,374 business closures with 17,503 (58%) permanent. 

There's no question this problem is acute and could grow worse as we head into the new. 

And with Covid infections on the rise again - and mass vaccination several months away or more - Congress and the White House need to get their acts together now.

At the same time, something has to be done to force the Treasury Department to release the unspent - and apparently hidden - $340 billion to the Fed, which in turn needs to get the money to where it's needed the most and to whom it was intended...

...the desperate owners of failing small businesses who are the real backbone of the nation's economic engine.