Attempting to derail the urgent $900 billion stimulus bill, 59-year-old Sen. Patrick Toomey (R-Pa.) demanded that Congress after Dec. 31 limit the amount of cash the Federal Reserve Board can print to deal with fiscal emergencies in the U.S. banking system. Toomey’s plan is so outrageous, so off the wall, so destructive that it attempts to undermine the Dec. 23, 2013 Federal Reserve System designed to prevent another financial panic like the one in 1907 when U.S. banks ran out of cash. If it were not for the Federal Reserve Bank the U.S. would have gone broke again when the stock market crashed Oct. 24, 1929, losing about 30% of value in two days, starting the Great Depression, lasting until 1933. But without the Fed’s ability to print and circulate sufficient amounts of banking reserves, the country would never have gotten out of the Great Depression that lasted four years.
Toomey threw a money wrench into urgent negotiations on a new stimulus bill designed to help cash-strapped workers and businesses suffering under the Covid-19 crisis, that’s infected 18,977,768 and killed 323,401 U.S. residents [some citizens, some not], demanding emergency federal aid to prevent the economy from cratering. Toomey demands that the Fed’s emergency lending powers be cut off after Dec. 31, not renewed, something vital to the Fed’s management of the U.S. banking system and economy. Senate Majority Leader Mitch McConnell (R-Ky.) urged his fellow GOP senators to back Toomey’s attempt to sunset the Fed’s emergency lending powers. If Toomey gets his way, he will have destroyed the Fed’s emergency lending capacity necessary to deal with liquidity problems in the fractional reserve banking system. Without fractional reserve banking, U.S. banks would collapse.
Republicans and Democrats should join together to defeat Toomey’s destructive proposal, deferring any discussion of changes to the Fed until after the Jan. 20, 2021 inauguration of 78-year-old Joe Biden. Given the economic uncertainty surrounding the Covid-19 crisis, Biden wants to keep his options open, not knowing what will happen to the economy once he takes over. If Wall Street sells off and the nation plunges into a more serious recession or depression, 67-ytear-old Federal Reserve Board Chairman Jay Powell will need all the tools currently at his disposal to meet any economic challenge. Sunseting the Fed’s emergency lending powers would be a serious mistake, potentially creating a run on the bank, as citizens panic demanding cash deposits. Republicans and Democrats need to take Toomey’s proposal off the table, remove it from any consideration of a new Covid-19 relief bill.
Toomey and other GOP conservatives worry about spiraling national debt and budget deficits, something that’s a necessary evil in times of recession or depression. Fed Chairma Jay Powell urged Congress to pass economic stimulus, knowing its necessary beyond what the Fed can do with monetary policy. Powell’s already slashed interest rates to zero percent, continuing the same policy as former Fed Chairman Ben S. Bernanke who slashed the Federal Funds Rate Dec. 16, 2008 to zero in the height of the 2008 Financial Crisis. Seeing the impact of Covid-19, Powell slashed the Federal Funds Rate to zero March 15 expecting Covid-19 to plunge the U.S. into deep recession if not depression in 2020. Toomey’s attempt to limit the Fed’s options for saving the U.S. economy by injecting as much cash as necessary would be undo the 1913 Federal Reserve System designed to prevent another financial panic.
Sen. John Kennedy (R-La.), no relation to President John F. Kennedy, accused the Fed of running a “commercial bank,” insisting Republicans should stay strong about stripping the Fed of its emergency lending powers. Kennedy doesn’t get that if commercial banks run out cash, the Fed must have emergency lending power to increase its balance sheet to add reserves into the banking system. Toomey and Kennedy show that they don’t understand the function of the Central Bank to print money at whatever level is needed to preserve the U.S. economy. If Republicans want to crash Wall Street and plunge the nation into another Great Depression then they’ll tamper with the Fed’s powers for emergency lending. Whatever cash is needed to Covid-19 stimulus for cash-strapped businesses and citizens, more stimulus checks, extended unemployment benefits, etc., the Fed must remain untouched.
When former Fed Chairman Bernanke speaks publicly opposing Republican plans to tamper with the Fed’s emergency lending powers, you know they’re on the wrong track. “The last think America needs right now is to make it tougher to help people in communities and that’s what the proposal does,” said Sen. Ron Wyden (D-Or.), ranking member on the Senate Banking Committee. Democrats and Republicans should strongly oppose any attempt to allow the Fed’s emergency lending powers to sunset Dec. 31. Given the uncertain economy under Covid-19, the Fed must preserve every tool possible to fight off a protracted recession or depression. Senators should focus first on passing the new $900 billion stimulus bill without tampering with the Federal Reserve Board. Fed’s powers must remain “fully intact,” Bernanke said, urging Congress to pass stimulus without messing with the Fed’s powers.
