What should the government do?

Send people money. Now.

The coronavirus is here.  People are sick and more will be in the coming weeks. Some will die. We are not helpless, but  we are not invincible either.

No amount of test kits and face masks; soap and water; or thoughts and prayers will keep people from getting sick. The suffering will not stay in hospitals, nursing homes, and quarantine zones. It will be show up in bank accounts too. Getting sick for many Americans is a serious blow to their finances, threatening their ability to pay the bills, including for medical care. People must to go to the hospital if they get the coronavirus and they must keep their jobs and their homes.

I made the case this week for the federal government, as well as state and local governments to act. We should treat the coronavirus like we would a recession. We need to move fast and stay the course. The government uses many tools in a recession and we need to strengthen these tools and turn them on as soon as recession hits. We are not in a recession today but we could be if we let the coronavirus go unchecked.

Get money to people now would be a front line financially.  The easiest way is to cut federal tax withholding for the next two months. In 1992, George H. W. Bush issued an executive order, employers used the new withholding tables, and within weeks people got a bump in their paychecks. It worked, people spent the money.

President Trump could sign a similar executive order today. Money would be in paychecks fast and might get there faster than the coronavirus. Once the virus is under control, withholding would be increased. By the end of the year, people could have set aside the same amount for taxes due next year. They would get more money now, when they need it most. No change in the federal budget, so action doesn’t need Congress.

The Administration in interviews this week said it does not  want to use a broad brush approach. They want to target the support. I want both. Money to everyone now and more money to people who get sick later.

Next, let’s think about Congress. Unfortunately, Congress cannot get money to everyone so quickly. In past recessions, Congress has passed various tax cuts. Even if they voted today, the money would not reach families for months. We are in the middle of tax filing season and the Internal Revenue Service does not have bandwidth to send out extra payments. At the earliest, people could get the money in May. The coronavirus will not wait. This week Congress enacted $8.3 billion for public health efforts. It’s an insult. We need hundreds of billions of dollars flowing out to fight the virus directly and financially support anyone caught in its path. That’s what they can do now.

So how else could we get money to everyone fast? The Federal Reserve. They have acted already and stand ready to do more. Tuesday, three hours after a call of the G-7 financial ministers and central bank leaders, the Federal Reserve cut the federal funds rate 1/2 percentage point. The Fed did not wait until their next vote on March 18. They cut.

The problem is cutting rates is not as good as getting people money. The Fed’s tools from the fed funds rate to large-scale asset purchases are not as effective as in the past. Long-term interest rates are at historic lows. A decrease in cost of borrowing, by any means, is not going to help much. It was cheap to borrow before the rate cut and cheap after it. Besides, who wants to buy a new car or take on a mortgage when the stock market is gyrating and coronavirus is advancing? The Fed pushing down interest rates is too weak, too blunt, and too slow to work against the coronavirus.

Monetary policy is not targeted or timely. We need to get ahead of the coronavirus. We need fiscal policy. The Fed could do it. What? Yes, it could.

Say hello to “money-financed fiscal policy.” Basically, the Fed prints money and gives it to people. Before you start a ‘Go Fed! Go!’ cheer, let’s be real. This policy only exists in some academic papers and is the source of Ben Bernanke’s nickname, Helicopter Ben. It has never been used. But it is possible, even without the Administration or Congress.

Here is a sketch of my ‘blue sky’ plan.

• The Federal Reserve buys $165 billion in U.S. Treasuries and adds them to its balance sheet. (The plan starts like the asset-backed purchases the Fed has used.)
• Then the Fed gets the money to banks, using its existing infrastructure. One way is at its discount window, a place where banks can get loans from the Fed. In this one special case, banks would ‘borrow’ money from the Fed at negative 1 percentage point interest rate (to cover the bank’s administrative costs).
• Banks would then have four weeks to give the money to people. If they do, the Fed writes off the loan and the bank does not repay the Fed. If not, they have to return the money to the Fed.
• People will go to a bank, show identification, and get $500.  For each child, again show a birth certificate, then get another $500. The person does not have to be customer. They simply have to go get their money. (People who take more than their fair share will have it taken out of future tax refunds or wages.)

Within weeks, the Fed would get $165 billion, that is $500 for each of the 327 million people who live in the United States.

This is not a plan. It is a Hail Mary. We should NOT have to throw a Hail Mary.

WE NEED TO THROW A HAIL MARY. DO SOMETHING BIG AND NEW!

We have a real-life plan:

• The President signs and Executive Order to cut federal tax withholding to zero over the next two months, up to a cap of $500 per month, to raise take home pay. Only employees being paid will benefit; however, this extra money could get to people within weeks, before many people are quarantined or become ill.
• Congress should pass legislation to MASSIVELY increases federal funding for public health and financial support to people directly affected by the coronavirus.
  • They should use existing systems, so the aid can begin immediately.
  • They should declare disaster areas, where mass outbreaks occur and use the Federal Emergency Management Agency to support people in those areas.
  • They should increase Federal Medicaid Assistance Percentages across the country, giving state governments money for local public health campaigns.
• The Fed should cut the federal funds rate another 1/2 percentage point at their meeting on March 18. They should go to zero by June, if needed. They should not conserve their ammo. The current situation is why they have ammo.

This plan will work, if the government works together, now.