Tuesday, top US economic policymakers opened the door to further aid for small businesses hit by the virus-triggered instant recession.
In testimony before the House of Representatives Financial Services Committee, Treasury Secretary Mnuchin and Fed Chairman Powell were pressed by lawmakers concerned the multi-trillion-dollar effort to battle the economic fallout from the virus chaos had left a broad swathe of businesses vulnerable, from the smallest corner restaurants to commercial office properties and hotels.
Both Messrs Mnuchin and Powell said they were looking for ways to extend more help, but they were hitting legal and practical limits that might require action by Congress to avoid.
Fed loans backed by commercial buildings as collateral were often prohibited by existing lending agreements that forbid the owners from further borrowing. And proposals that the Fed loosen requirements for its Main Street Lending Program to make it more accessible to smaller firms, overlooked the fact that larger businesses have been the 1s interested in central bank credit.
“There is very little demand below a million dollars,” Chairman Powell said in response to Secretary Mnuchin’s suggestion that the minimum loan size under the facility could be lowered from $250,000 to $100,000.
Help for small businesses would better come through another grant-type program like the Paycheck Protection Program (PPP) because “trying to underwrite the credit of hundreds of thousands of small businesses would be very difficult,” for the Fed.
Tuesday’s hearing, which came 6 months into the virus chaos and 6 wks before the 3 November Presidential election, highlighted the focus on the issues the economy is facing.
Chairman Powell noted that much of the recent healthy economic data resulted from spending under the $2.3-T CARES Act. Approved in March as the foundation of the government’s economic response to the virus chaos, it authorized the Treasury to fund an array of Fed lending and credit programs as well as make direct payments to individuals, provide enhanced unemployment benefits, and give small business PPP loans that are intended to be forgiven.
The result was not only a jobs rebound, but a steadying of personal incomes and rise in personal savings accounts that made the economy “resilient” to the run of loan defaults, evictions and other problems feared when the instant recession hit.
Since many of those programs lapsed, “the risk is that the people go through those savings, and they have not been able to find employment … Their spending will decline, their ability to stay in their homes will decline. The economy will begin to feel those negative effects,” Chairman Powell said.
The fate of small businesses, the main driver of US employment, but also 1 that is vulnerable to cash flow disruptions and lack of credit, is Key to shaping how fast and broad the recovery will be.
Both Messrs Powell, Mnuchin and the lawmakers agreed further help for the sector is needed.
Congress is at a stalemate over providing further virus-related aid/relief/stimulus.
Tuesday’s hearing was the 1st of 3 featuring Chairman Powell this week. Wednesday, he is due to appear before the House Select Subcommittee on the Coronavirus Crisis. And Thursday, both Messrs Powell and Mnuchin will testify before the Senate Banking Committee.
“Without question, small businesses is where the Government’s focus should be for they desperately need the help and many States have been slow in their permanent re-openings of this segment of the economy.
“Instead, they are using, wrongly in my opinion, too often the shut off and on valve to control the pandemic. Because of that, many of these small businesses are doomed for failure. Being cooped up is not the culture of the American society.
“Even though there are a number of new products now on the market which seem to be a potential contributor to covid-19s demise and useful to cause employment recovery too, Congress seems to avoid them and to want to play politics in this election year.
“Instead they should be focusing on potential environmental solutions, such as in-door new air testing and temperature reading machines, as a contributory solution to the problem.
“In my opinion, many new products have been introduced to reduce employment fears of catching the virus. If Congress allocated funds for more research and development, particularly to the small business sector where many of these products are originating, then our economy could be opened up even faster.
“Instead they seemed to have avoided aid in this area, instead using such aid for their favorite pork-barreling projects” says regular editorial contributor Bruce WD Barren
Have a healthy day, Keep the Faith!