Rethinking Fed Lending to Get Help to Working Families

By SETH SANDRONSKY

In early August, as the COVID-19 pandemic raged in rural and urban communities, federal financial help for cash-strapped states and local governments was in doubt. Public services and jobs for tens of millions of people across the US were at-risk from budget cuts.

There was a way to avoid that scenario, which would trigger a consumer demand-shock if/when state and local budget slashing heats up. The Federal Reserve Bank, the nation’s central bank, can, with its Municipal Liquidity Facility, lend up to $500 billion to struggling states and local governments.

Have you heard of the Fed’s MLF? “The Federal Reserve established the Municipal Liquidity Facility to help state and local governments better manage cash flow pressures in order to continue to serve households and businesses in their communities,” according to the central bank.

The Fed is in the news for its financial help during the Great Recession and the coronavirus catastrophe to corporate America and the wealthy. Yet the same Fed can help the rest of the American populace facing economic disaster from depression-like business failures and unemployment rates.

We turn to Nomi Prins, an author and journalist. “At this critical time state and local governments are struggling to make up funding gaps relative to their budget expectations for the year,” she told The Progressive Populist in an email, “given business closures throughout the country. Facilities that target that segment of the national economy are more important for sustaining the real economy from the standpoint of health, education, unemployment benefits and other social services, than for the financial markets which have by far received the largest push from the Fed’s programs so far.”

While COVID relief floundered in Congress, Ailen Arreaza, Bethany Robertson and Justin Ruben, from ParentsTogether, a national organization of over two million US parents, drew attention to job, hunger, and shelter woes of kids also experiencing mental health and school issues in the face of looming government spending cuts. For this generation, or “gen c,” their fates rely in no small part on what government does (not) do during the health and economic crises. While their primary focus was Congress for fiscal help, the Fed’s MLF, a tool of its monetary policy, can provide financial relief, too.

The trio wrote in The Guardian: “Here’s what a rescue plan for Gen C could look like: we’d start by giving families ongoing support and keeping people employed so that every child has a stable home and enough to eat. We’d double down on education, pouring resources into schools to help them catch up with the kids left behind by remote learning and reopen safely when it’s feasible. We’d provide emergency funding to childcare programs; guarantee paid family leave and sick leave; make sure every family has access to healthcare, including mental health; and demand [that] tech companies implement emergency features to safeguard kids across remote learning and social media.”

What if Congress cannot or will not bail out states and local governments facing big budget cuts due to paltry tax revenue from pandemic closures? The Fed’s MLF has $500 billion to provide.

Seth Sandronsky lives and works in Sacramento. He is a journalist and member of the Pacific Media Workers Guild. Email sethsandronsky@gmail.com.

From The Progressive Populist, September 1, 2020

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