The bipartisan funding of the Coronavirus Aid, Relief, and Economic Security Act (Cares Act), was an example of a wise and timely response to our present catastrophe. Congress and the president were worthy of the kudos the citizenry bestowed on them. For four months the Cares Act did a yeoman’s job of controlling the bleeding.
Unfortunately, the demands for funding across the board have not abated. In fact, the situation has gotten worse.
It is imperative that policy makers think outside their comfort zones and continue funding extensions of the Cares Act. Defunding will cause unimaginable hardship and spell the end of all but the most well endowed businesses.
Economic austerity, embraced by the Senate, will not cure the problem, it will make it exponentially worse. We will not have to worry about motivating the unemployed to seek jobs, there will be none.
The great concern in the Senate, in funding the Cares Act, is growth of the national debt and the taxpayer’s ability to service it. This is a legitimate concern as the Treasury often sells bonds to foreign buyers and have to pay interest on those bonds.
Paradoxically, in the last decade, foreign buyers have had to pay a quarter percent premium for U.S. Treasury Bonds, a positive cash flow event for the U.S. Treasury.
It is understandable that many of the senators operate from the conservative side of the field, and a trillion dollar, let alone a two trillion dollar check is not one they often write. Fortunately for us all, there is a fiscally prudent solution to this problem.
Over the last six months, many Americans have been staying home and saving.
So much so that the savings rate at the Federal Reserve has increased from 8% to 20%.
This fact alone will enable the Federal Reserve to issue and service the national debt and the Cares Act for quite some time. But don’t take my word for it. Here are Michael T. Osterholm, director of the Center for Infectious Disease Research and Policy at the University of Minnesota, and Neel Kashkari, president of the Federal Reserve Bank of Minneapolis. The following is an excerpt from an editorial they co-authored in The New York Times on Aug. 7.
"This pandemic is deeply unfair. Millions of low-wage, front-line service workers have lost their jobs or been put in harm’s way, while most higher-wage, white-collar workers have been spared. But it is even more unfair than that; those of us who’ve kept our jobs are actually saving more money because we aren’t going out to restaurants or movies, or on vacations. Unlike in prior recessions, remarkably, the personal savings rate has soared to 20 percent from around 8 percent in January.
Because we are saving more, we have the resources to support those who have been laid off. Typically when the government runs deficits, it must rely on foreign investors to buy the debt because Americans aren’t generating enough savings to fund it.
But we can finance the added deficits for Covid-19 relief from our own domestic savings. Those savings end up funding investment in the economy. That’s why traditional concerns about racking up too much government debt do not apply in this situation. It is much safer for a country to fund its deficits domestically than from abroad.
Congress should be aggressive in supporting people who’ve lost jobs because of Covid-19. It’s not only the right thing to do but also vital for our economic recovery. If people can’t pay their bills, it will ripple through the economy and make the downturn much worse, with many more bankruptcies, and the national recovery much slower."