In order to abolish any doubts that a massive economic downturn is just beginning, the Wall Street Journal reported that the US Department of Treasury plans to borrow $3 trillion in order to deal with the COVID-19 fallout.
This sum would be borrowed in during the April-June quarter to deal with the coronavirus pandemic.
It’s an unprecedented level of deficit financing to match the historic economic hit caused by the virus. In a single quarter, the government will borrow more than twice as much as it did all of last year.
In total for the fiscal year, the entire plan sits at borrowing $4.5 trillion.
“The increase in privately-held net marketable borrowing is primarily driven by the impact of the COVID-19 outbreak, including expenditures from new legislation to assist individuals and businesses, changes to tax receipts, including the deferral of individual and business taxes from April-June until July, and an increase in the assumed end-of-June Treasury cash balance,” a statement by the Treasury said on May 4th.
The borrowing estimate is USD 3,055 billion higher than what was announced in February this year, the US Treasury said.
During the third quarter, Treasury expects to borrow $677 billion in privately-held net marketable debt, assuming an end-of-September cash balance of $800 billion, the statement said.
During the first quarter, Treasury borrowed $477 billion in privately-held net marketable debt and ended the quarter with a cash of $515 billion, it said.
Meanwhile, with the economy cratering and unemployment climbing to levels not seen since the Great Depression, Congress has authorized trillions of dollars in relief payments, unemployment benefits and loans to small businesses, as well as money for vaccine research and coronavirus testing.
To ensure that the borrowing costs remain relatively low, the Federal Reserve vowed to buy as much Treasury debt as necessary to face the consequences of the pandemic.
“This is the time to use the great fiscal power of the United States to do what we can to support the economy and try to get through this with as little damage to the longer run productive capacity of the economy as possible,” Federal Reserve chairman Jerome Powell said. [pdf]
Powell described himself as someone who has long argued against runaway federal deficits.
“But this is not the time,” he said, “to let that get in the way of us winning this battle.”
The Federal Reserve has cut its benchmark fed funds rate close to zero and purchased almost $2 trillion in Treasurys and mortgage related assets.
It has announced nine lending programs to lend another $2 trillion to calm all corners of the financial markets. As a result, the Fed’s balance sheet has reached a record $6.6 trillion, up from $4.2 trillion in February.
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