In testimony before the US House of Representatives on Tuesday, Chair Powell noted economic challenges under covid, as well as supposed triumphs such as an increase in household spending “likely owing in part to federal stimulus payments and expanded unemployment benefits.”
That would be laudable if it weren’t free market interventionism:
We remain committed to using our tools to do what we can, for as long as it takes, to ensure that the recovery will be as strong as possible, and to limit lasting damage to the economy.
His reference to “tools” refers to his self-declared “forceful actions” since March, which “helped unlock more than $1 trillion of funding” by:
implementing a policy of near-zero rates, increasing asset holdings, and standing up 13 emergency lending facilities. We took these measures to support broader financial conditions and more directly support the flow of credit to households, businesses of all sizes, and state and local governments…
We can look past what he told Congress to see that since mid-March, the M2 money supply and the balance sheet have both increased by about $3 trillion to $18.58 trillion and $7.06 trillion, respectively. Powell also provided updates on various lending programs, noting around $2 billion for loans to the Main Street Lending Program, nearly $13 billion for the Secondary Market Corporate Credit Facility (corporate bond/ bond-ETF) buying program, and $250 million for the municipal bond purchase program. To clarify, all this money didn’t exist in February, it is literally “new money” credited to various bank accounts across the country.
He touched on the lesser-known Term Asset-Backed Securities Loan Facility (TALF), mentioning how nearly $100 billion can still be lent, but just under $3 billion has been utilized to date. Of course, these funds are not for Main Street since the three-year loans are reserved for:
certain triple A-rated ABS [asset-backed securities] backed by student loans, auto loans, credit card loans, loans guaranteed by the Small Business Administration (SBA), and certain other assets.
So just who exactly has been receiving the nearly $3 billion in TALF support? Powell didn’t say. However, when we review the monthly reports to Congress under TALF’s September 8, 2020 transaction-specific disclosures, we see that the aptly named Mackay Shields TALF 2.0 Opportunities Master Fund LP received $571 million from thirty-two loans, with an interest rate from 0.76 to 1.30 percent. Per the company’s website, Mackay Shields is a firm of 210 employees managing $134 billion in assets. The collateral pledged to the loans was commercial mortgages, student loans, and several small business loans under SBA 504, which is a “loan program that offers small businesses another avenue for business financing” according to the Small Business Administration’s website.
Looking deeper into the data other names, large asset managers and some overseas firms are mentioned; only one question remains:
What about BlackRock? We know they helped the Fed launch its corporate bond buying program; surely by now we can expect Wall Street to receive more than Main Street.
Also included in the report, they received seven loans totaling $113 million, with the same favorable interest rate of the Mackay Shields loans for commercial mortgages and, naturally, small business loans.
Now imagine BlackRock, having $7.32 trillion in assets under management and getting small business loans from a central bank! Meanwhile the man responsible appears before elected US officials and isn’t met with so much as any scorn, ridicule, or calls to resign. Yet who dares ask of the long-term effects of stimulating a semi–shut down economy with a money machine? As usual, some on Main Street get breadcrumbs while the richest companies in America get entire loaves of bread!
Regardless of what the Fed does or Powell says, does any of it matter to Congress? If it did, one would think they would have ended the Fed, especially by now. As if to prove the point, Powell delivers the coup de grace at the very end, saying that, despite their efforts,
Many borrowers will benefit from these programs, as will the overall economy, but for others, a loan that could be difficult to repay might not be the answer. In these cases, direct fiscal support may be needed.
We know we’re in trouble when central bankers are asking for fiscal stimulus. Where does the Fed think Congress will get the money if not from the Fed? Not many, if any, elected officials understand the origins of money. But what’s Powell’s excuse?
