Treasury Secretary Mnuchin recently asked the Fed to return some money appropriated by Congress to cover future losses on asset purchases that it might engage in during the Covid-19 epidemic. This action has been highly criticized as the (post-election) timing is suspicious and the pandemic is now getting dramatically worse. But here I’d like to focus on the politics of the issue.
Here’s Yahoo.com:
“The only justification for taking what is a legally questionable act of moving these funds out of the reach of the Biden administration is to salt the Earth, to limit their options, and leave the country in a more dangerous place for political purposes,” said Barofsky, now a partner at the law firm of Jenner & Block. “Full stop. There is no legal justification for this.”
Barofsky was appointed by President George W. Bush in 2008 to oversee TARP funds used to save banks, insurance companies, and automakers during the Great Financial Crisis.
He told Yahoo Finance that there is precedent to reallocating emergency funds, pointing to the Obama administration’s efforts to redirect $225 billion in TARP into the Treasury’s General Fund. Barofsky said an act of Congress was needed to move that money.
For the CARES Act money, Barofsky points to Sec. 4027 of the bill, which notes that on January 1, 2026, any remaining funds are to be transferred into the Treasury’s General Fund for deficit reduction.
“The statute doesn’t allow him to do this until 2026,” said Barofsky.
Ultimately, Barofsky said the Biden administration could choose to ignore Mnuchin’s move and shift the funds back into the ESF once the White House changes hands.
But it was the very next sentence that caught my eye:
But he said he does not expect the Biden administration to take such aggressive action, adding that he also would not bet on the Fed launching a legal challenge.
I don’t understand this claim. Given that Barofsky believes the action is clearly illegal, why wouldn’t Joe Biden reverse the decision on January 21st? And why would a reversal be viewed as “aggressive”? It’s widely expected that Biden will reverse many executive decisions made by the Trump administration; why not this one?
In this post I’m not interested in debating the wisdom of this policy. My own view is that some parts were useful and ought to be made permanent, while other parts were unwise. What interests me is the politics of executive orders. It seems like neither the Fed nor the Biden advisors are happy with Mnuchin’s decision. So why wouldn’t they reverse it?
READER COMMENTS
Alan Goldhammer
Nov 27 2020 at 4:54pm
We won’t know what the Biden Administration will do until 12:01 on January 20 assume the current resident of 1600 Pennsylvania Ave departs. As to what the Fed might do, who knows. They may be examining their legal options. Jay Powell is a lawyer after all.
Michael Sandifer
Nov 27 2020 at 5:43pm
Is this just another example of the asymmetry in willingness to engage in realpolitik with respect to the two parties? I’ve long thought Democrats should practice much more realpolitik, as long as Republicans do so.
Scott Sumner
Nov 27 2020 at 8:49pm
I don’t see what this has to do with practicing “realpolitik”. If the order is illegal, then reverse it. It’s about obeying the law.
Michael Sandifer
Nov 27 2020 at 9:06pm
Yes, but even when it merely comes to enforcing the law, Democrats often don’t want to rock the boat. They bring fruit baskets to gun fights.
Kurt Schuler
Nov 28 2020 at 9:08pm
Democratic and Republican partisans both often claim that their own side is too nice. They are both wrong. Perhaps you need reminding about Obama’s “pen and phone.”
Thomas Hutcheson
Nov 27 2020 at 7:50pm
Well, as for the reason one might whis the funds were not moved, but be unwilling to move them back, the latter might be seen as foreseeing crisis which would be bad for NGDP expectations.
Thomas Sewell
Nov 28 2020 at 8:53am
Some additional quotes:
And:
So it appears that the other side contends that the funds were supposed to expire at the end of this year and that once they’re returned, they’d need to be reappropriated by Congress rather than just spent on whatever the CARES administrator decides.
Presumably, if Biden’s team thinks the legalities are as described, or that a court may hold that they are, that’d make them reluctant to try and just spend the money on say, debt relief for NY (which is the sort of thing Mnuchin is politically attempting to prevent), without new authorization from Congress.
Bottom line: It doesn’t seem as simple as “This was obviously illegal, so we can just undo it.”
Scott Sumner
Nov 28 2020 at 5:53pm
I completely agree that Biden doesn’t have a blank check to spend this money. What’s not clear is that the Fed should have had to return it. I am puzzled as to why the author think’s Mnuchin’s actions are clearly illegal, and yet that overturning the action would be a radical step.
If Mnuchin’s actions are legal, then obviously things are different, as you say.
Michaael Pettengill
Nov 28 2020 at 6:56pm
I’m not sure what Biden thinks or will do, but he’s a “regular order guy” who thinks Congress, representing We the People, should act in the interests of the People.
The GOP, driven by conservatives, acts as if the People are the enemy, and Congress is to enrich the conservative elites, and screwing the People is the best way to enrich the conservative elite. Munching is their agent, for example profiting from taking away the homes of workers sold a free lunch bill of goods by Wall Street speculators.
Congress needs to act, and this isn’t even small potatoes, but spilt peas money.
Dictator wannabe McConnell is willing to destroy America for power. He hates the people of Kentucky who bizarrely vote against their own interests as the price of waging a culture war on leftists who are too rich from producing things too many people want that isn’t based on coal, horses, jobs that kill,.. the Massachusetts liberal elites, the Hollywood elites.
Its McConnell and Mnuchin class that killed all the Midwest factory jobs. Thanks to Milton Friedman arguing in the 70s killing factory jobs was a good thing because higher education jobs will replace them. But businesses should not educate workers. Nor should government pay to educate workers, reversing the policy of the past half century.
Biden will negotiate with Congress. How far will he go dooming millions of workers to get a deal with McConnell? Or will McConnell force Biden to manage the US into depression, which will most heavily screw GOP voters.
I favor a depression.
And the Fed is totally powerless.
The Fed is funding Elon Musk’s Austin Terrafactory construction while thousands of Texans like un for free lunches because conservatives demanding cost cutting have driven the highest price consumers can afford to $0.
My liberal elite leftist class will do fine. I’ll help create a few more low skill Amazon jobs in Kentucky, but what Kentucky workers need are construction jobs, like replacing the bridge from Cincinnati to Kentucky. Obama used that as the backdrop of one of his appeals to McConnell for infrastructure spending. McConnell in his grudge based on whatever, screwed Kentucky.
The Fed can’t build infrastructure. The Fed is powerless.
Anonymous
Dec 3 2020 at 2:27pm
eyeroll
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