Mnuchin Calls for More Covid Aid, Says Congress Should Consider Forgiving ‘Small’ Loans
Treasury Secretary Steven Mnuchin on Friday called on Congress to work with the Trump administration to pass additional coronavirus relief legislation by the end of the month and suggested that lawmakers should consider blanket forgiveness of all small Paycheck Protection Program loans to businesses.
Additional aid should be targeted to those hardest hit: In his prepared testimony before the House Committee on Small Business, Mnuchin said he anticipates that the next round of relief will be "targeted to certain industries, smaller businesses, and lower- to middle-income families that have been especially hard-hit by the pandemic." He added: "Our focus will be on jobs and getting all Americans back to work."
Forgive all ‘small’ PPP loans? Mnuchin said that the next phase of relief should extend the $660 billion Paycheck Protection Program and allow businesses to get a second round of loans, but again called for the aid to be more targeted to smaller companies and industries suffering most from the pandemic, including as restaurants, hotels and other travel and hospitality businesses. "I think this time we need to have a revenue test and make sure that money is going to businesses that had significant revenue declines," he reportedly said.
In response to a question about how the loan process could be simplified, Mnuchin suggested that the government should consider forgiving all "small" loans without verifying how the borrowed money was spent. "We should consider forgiving all small loans, but would need fraud protection," Mnuchin said.
PPP borrowers may qualify to have their low-interest loans turned into grants if they meet certain criteria, including verifying that at least 60% of the funds went toward paying employees. Loans can also be partially forgiven if borrowers don’t meet that threshold.
The Treasury Department and SBA are reportedly grappling with how to process millions of likely applications for loan forgiveness.
The administration has yet to open an online portal for banks to apply for loan forgiveness on behalf of borrowers, but Small Business Administration chief Jovita Carranza said Friday she hoped it would be ready by next month. Some lawmakers and small-business advocates have complained that the forgiveness application process is too complicated. "We’re going to have a very robust process to review loans before loans are forgiven," Mnuchin reportedly said Friday. "In the forgiveness process, people will be required to provide much more data and that data will be released."
Some lawmakers, banks and other businesses have suggested that loans under $150,000 should automatically turned into grants. Nearly 150 industry trade groups wrote to Congress earlier this month in support of the idea, saying it would save more than $7 billion.
Mnuchin did not specify on Friday what the threshold for such blanket forgiveness might be. The smallest loans tracked by the SBA in its reports are up to $50,000 and account for nearly 70% of all loans under the program, The Washington Post reports. Setting the bar at $150,000 would account for about 86% of the nearly 5 million PPP loans and about 27% of the roughly $520 in approved funds.
Bernanke and Yellen Urge Congress to Extend Unemployment Benefits
Former Federal Reserve chairs Ben Bernanke and Janet Yellen urged lawmakers not to let enhanced unemployment benefits expire this month and to set aside deficit concerns for now to deliver the stimulus the economy needs in the face of the coronavirus pandemic. "We do not believe that concerns about the deficit and debt should prevent Congress from responding robustly to this emergency," Yellen told lawmakers Friday.
The Hill’s Sylvan Lane reports:
"In testimony before the special House coronavirus subcommittee, the two most recent former Fed chiefs warned lawmakers that the U.S. could face deep, permanent economic damage without more than $1 trillion in further stimulus. … Bernanke — a former Republican who disavowed the party in 2015 — and Yellen, a Democrat, said the next congressional stimulus measure should focus on three areas: investing in the medical response to the pandemic, extending enhanced unemployment benefits, and giving local governments enough financial support to sustain crucial services amid steep revenue shortfalls."
In a New York Times op-ed earlier this week, Bernanke urged lawmakers to provide more aid to states to avoid a prolonged economic downturn.
IMF Urges US to Pass More Stimulus
The International Monetary Fund said Friday that the U.S. is facing serious economic challenges – caused by both the coronavirus and long-term issues including growing inequality and declining socioeconomic mobility – and urged the country to deploy more fiscal stimulus in order to boost growth.
"The U.S. has fiscal space and it should be deployed quickly to hasten the recovery from the second-quarter contraction, permanently improve the social safety net, and facilitate a broader remaking of the U.S. economy," the IMF said in a statement.
As part of its annual review of the U.S. economy, the international organization provided growth estimates for 2020. According to its analysis, the economy shrank 37% on an annualized basis in the second quarter and is projected to contract by 6.6% for the full year.
Looking ahead, the IMF said the U.S. still faces a significant economic risk from a resurgence of the coronavirus, which may be getting underway right now. Even without a second wave of the virus, though, negative effects from the pandemic contraction could linger. "[T]the risk ahead is that a large share of the U.S. population will have to contend with an important deterioration of living standards and significant economic hardship for several years to come," the IMF said. "This, in turn, can further weaken demand and exacerbate longer-term headwinds to growth (e.g. by preventing the accumulation of human capital, eroding labor force participation, or contributing to social unrest)."
Quote of the Day
"People are viewing this as a one-in-a-century kind of event. Even many of those who would generally oppose deficit borrowing are saying this is an act of God, and we should borrow."
-- Patrick Brett of Citigroup, quoted in a Bloomberg article about the growing wave of debt issuance by states as they turn to the municipal-bond market to cover massive budget deficits caused by the coronavirus crisis.
Defund the Pentagon? Views From Left and Right
Politico published dueling op-eds this week on the topic of reducing funding for the Pentagon. Andrew Lautz of the National Taxpayers Union and Jonathan Bydlak of the R Street Institute provide a conservative view on the issue, arguing that the recent unprecedented increase in federal outlays in response to coronavirus crisis should inspire a total review of other spending in the federal budget — beginning with "the single largest part of the federal discretionary budget, an entire category of spending that has long been off the table: the Pentagon."
Lautz and Bydlak say that while many conservatives give the Defense Department a free pass when it comes to bloated budgets and unrestrained spending, at "a time of enormous deficits and record debt, this can no longer be acceptable." They join with libertarians on both the left and the right in calling for reduced defense spending and more comprehensive audits of allocated funds. Although short on details, they say they stand by the idea that "in a post-coronavirus world, all expenditures can and must be on the table."
From the left, Sen. Bernie Sanders (I-VT) says the coronavirus crisis makes it clear that "now is the time to fundamentally change our national priorities," starting with the $740 billion defense bill Congress is expected to approve in the coming weeks. "After adjusting for inflation," Sanders writes, "this bill would spend more money on the Pentagon than we did during the height of the Vietnam War even as up to 22 million Americans are in danger of being evicted from their homes and health workers are still forced to reuse masks, gloves and gowns."
In an effort to rebalance priorities, Sanders has introduced an amendment to the National Defense Authorization Act that would cut overall defense spending by 10% — $74 billion — while redirecting the funds "to invest in communities that have been ravaged by extreme poverty, mass incarceration, decades of neglect and the Covid-19 pandemic."
Quoting Republican President Dwight D. Eisenhower, Sanders makes the case that concerns about excessive defense spending have long been bipartisan. As the former Supreme Commander of the Allied Expeditionary Force in Europe during World War II said in 1953: "Every gun that is made, every warship launched, every rocket fired signifies, in the final sense, a theft from those who hunger and are not fed, those who are cold and are not clothed."
- Trump's Outrageous Refusal to Lead Is Making the Pandemic Worse – Stephen Collinson, CNN
- Trump Stares Down a Ticking Economic Time Bomb – Nancy Cook, Politico
- How to Save a Half-Open Economy – Ben Casselmanm and Jim Tankersley, New York Times
- Trump May Sabotage the Next Relief Bill – Jonathan Bernstein, Bloomberg
- The Next Disaster Is Just a Few Days Away – Paul Krugman, New York Times
- Who Would Kick Millions off Health Insurance in the Middle of a Pandemic? Yes, Trump – Catherine Rampell, Washington Post
- What $64 Million in PPP Loans Did for One Neighborhood – Noah Buhayar, Bloomberg
- The Fed Is Setting the Stage for a Major Policy Change – Tim Duy, Bloomberg
- Don’t Defund the Police. Re-Fund Them, Smarter. – David Hughes, New York Times
- Rising Coronavirus Downside Risks Threaten US Economic Recovery – Fitch Ratings