MNI POLICY: Mnuchin Proposes USD1 Trillion Stimulus

By Evan Ryser

     WASHINGTON (MNI) - U.S. Treasury Secretary Steven Mnuchin said the Trump

administration's proposals to counter the coronavirus are worth USD 1 trillion,

cementing a day when G7 leaders backed promises of coordinated fiscal action to

fend of a global recession. 

     "We have put a proposal on the table that would inject USD1 trillion into

the economy," Mnuchin told reporters Tuesday after meeting with Republican

senators. "Let me just say this is a combination of loans. This is a combination

of direct checks to individuals. This is combination of creating liquidity for

small businesses." 

     President Donald Trump told reporters earlier that the stimulus "is going

to be big, and it's going to be bold." 

     The Fed Tuesday morning announced a bank-crisis era emergency commercial

paper funding facility to prop up dysfunctional financial markets, and said it

will be doing USD1 trillion a day in overnight repo operations this week. 

     Fed Chair Jerome Powell briefed Speaker Nancy Pelosi for 25 minutes Tuesday

to discuss the emergency measures. The Speaker noted that with nearly zero

interest rates Congress is enabled to think big fiscally. Pelosi also urged

Powell to explore ways to use the Fed's authority to assist the most affected

state and local governments, according to a senior Democratic aide.

     The U.S. is stepping up after Trump's call with G7 leaders Monday pledged

to pull out all the stops to restore durable economic growth, and came on a day

when the U.K. introduced a package worth 15% of GDP and Spain offered 20%, while

Canada has promised a major package Wednesday. Markets plunged in recent days

after a previous G7 call pledged coordinated action that failed to generate big

spending or a coordinated rate cut as seen in the global banking crisis.

     With the Fed, ECB and BOJ already at zero or negative rates, fiscal action

is now the main tool for heading off a global recession as businesses are forced

to close by health authorities and consumers are asked to stay home throughout

much of the western world.

     China, the world's second-largest economy, has also offered stimulus and is

moving to re-open business after closing many cities after the virus began in

that country. 

     On Tuesday the World Bank increased to USD 14 billion the amount of

fast-track financing available to members to respond to the coronavirus

pandemic. 

     The Treasury market has been squeezed and stock exchanges fell into bear

markets in recent days as investors rejected weaker earlier commitments from the

G7 and elsewhere to sustain demand, as officials focused on the idea the virus

was more of a temporary disruption to supply. 

     Secretary Mnuchin has won approval from Trump for a tax deferral worth USD

300 billion, and has already agreed to two smaller legislative packages with

Democratic Speaker Pelosi - the first already signed into law and worth USD 8.3

billion. 

     The second package has been resisted by Senate Republicans due to labor

payouts that were divisive in an election year. But Senate Majority Leader Mitch

McConnell said Tuesday he will seek to pass a House of Representatives

coronavirus package as soon as possible and Republicans who disagree "should

gag," and vote for it anyway.  

     Though an official cost estimate is not yet available, Goldman Sachs

analysts note the House bill could amount to USD 100 billion, or roughly 0.5% of

GDP. 

     McConnell said the Senate will be working on the third stimulus package

that will be "of much larger proportions" and he urged his colleagues to prepare

to stay in Washington until it is passed into law. 

--MNI Washington Bureau; +1 202 371 2121; email: evan.ryser@marketnews.com

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