• Ashok Dhillon

Stimulus Funding – Ordinary People vs. The Rich (#120)

The Too Big To Fail

In the midst of the greatest economic and public health crisis in the USA, there is a marked disconnect in public policy and approach between the two major political parties that have governed America for almost its entire history. While ideologies have switched back and forth over time, the Democrats of today are without doubt the more people-oriented in comparison to their Republican counterparts, who much prefer industry special-interests, Wall Street, the wealthy and the powerful corporations.

This difference in preference is starkly on display as the two parties negotiate the details and terms of the vital second $1.0 Trillion federal assistance package, drafted and put forward this time by the Republican-controlled Senate, as opposed to the first critical $1.0 Trillion package sponsored by the Congressional Democrats, which was rolled-out quickly with bi-partisan support at the earlier stages of the pandemic.

This second relief package by the Republican Senate is far from getting bi-partisan support, as a number of Republican Senators oppose it vehemently from a conservative perspective of further government handouts, and Congressional and Senate Democrats oppose it for its very structure, its lesser amount, and its proposed allocation and dispersion of the funds.

To begin with, the Democrats had proposed a much larger, $3.0 Trillion second stage package which apart from continuing assistance along the lines of the first package, would also have included $1.0 Trillion in assistance to the very hard-hit States and local governments who had seen their revenues plunge during the Pandemic and were in some instances facing bankruptcy.

Instead, Senator Mitch McConnell, the senior-most Republican in the Senate, drafted the $1.0 Trillion relief Bill called HEALS Act (‘Health, Economic, Assistance, Liability Protection, and Schools’), which firstly did not have unanimous Republican Senate approval, and had strong Democrat disapproval as they did not think it adequate enough in size to cope with the crisis – and, it has no funds whatsoever for the strapped States and local governments, and cuts back on assistance to the unemployed Americans from $600 to $200 per week in assistance, but does allocate funds to objectionable goals in the midst of the pandemic, like a new FBI building, and yet more funds for the disastrous F-35 fighter jet program that has eaten money for years.

With not enough Republican approval, coupled with serious Democrat disapproval for its lack of comprehensive size and scope, the McConnell-sponsored HEALS Act has faced difficulties in being passed, even as the senior Democrats and top White House aides continue to negotiate and compromise to try and pass a second relief Bill, the HEALS Act.

Through this the greatest of crisis it becomes increasingly clear that the two political parties have very different loyalties to very different constituencies in America, with the Democrats pushing money towards the ordinary Americans, State and local governments and small business, while the Republicans want to seriously curtail the funds going to those constituents while allowing large unlimited amounts flow to special interests, big business and Wall Street.

This duality in government assistance is made possible by the splitting of the sources of the assistance being injected through the Monetary Policy - and through the Fiscal Policy.

The assistance to small businesses and to individuals is coming from the fiscal policies of the three branches of government, the Congress, the Senate and the White House, and to the financial markets and big business, through the monetary policies of the Federal Reserve Bank (or more commonly called the Fed), which is for all intent and purposes America’s Central Bank. And while there is hyper-partisanship and political haggling regarding the response (the size and dispersion of the amounts) through the fiscal policies of government, there is no such politics and arguments impeding the response of the Federal Reserve to the pandemic crisis.

The Fed is free to act as it sees fit, in response to any economic crisis, or to the general state of the economy through the American and international financial markets. This relative freedom has allowed the Fed to respond in an extremely aggressive way to the pandemic crisis by injecting over $3 Trillion into the financial markets since the crisis, and it continues to aggressively pump money into the financial markets daily, until it feels there is no longer the need for it. It is also ‘supporting’ the economy, in general, by driving down the interest rates to zero or near zero, and holding them there to ‘stimulate’ economic activity.

The problem with all of this is that since the Fed uses the principle of ‘trickle down’ economic benefits to Main Street (ordinary people) through the more or less direct availability of torrents of cash to Wall Street (all the rich, all big business, and all the financial players), the vast majority of the Fed’s largesse stays with the Wall Street crowd, with negligible amounts ‘trickling down’ to the Main Street crowd, as it happened with the last crisis in 2008.

This methodology of the Fed is again proving to be a massive windfall for the wealthiest in America, as the rich get infinitely richer, and even quicker, as Trillions become available to the rich individuals and institutions at practically zero interest rates, while the Republicans fight with the Democrats in government to reduce the $600 per week unemployment assistance to $200 per week, saying the $600 actually dis-incentivizes people from seeking work, or going back to work. And the critical aspect of this difference, in ‘assisting’ those in trouble, varies dramatically between the ordinary people and Main Street, and the wealthy and Wall Street.

For general Main Street, which includes small business and the ordinary working person, all the so called conservative values of the Republicans are triggered. Suddenly the incentivizing of people through less than living expenses from ($600 to $200 a week) becomes the noble cause. The free market forces culling the unfortunate, the weak and the bankrupt, right out of existence, is the practice, nurturing and preserving of ‘American Capitalism’. And the $3 Trillion proposed by the Democrats to ably assist all the people, including the State and local governments that got hit by the sudden and massive drop in revenues by the Pandemic, which brought their economies to a halt, becomes ‘too much’ and ‘socialism’, and downright ‘irresponsible’ money spending and debt incurring by Democrats.

This ‘Conservative Attitude’ of the Republicans then results in the much more modest ‘responsible’ $1 Trillion proposed by Republican Mitch McConnell, which still manages to include money for special interests like the Defense Contractors.

Meanwhile, the Fed pushing $3 Trillion plus, almost immediately through the financial system and promising ‘whatever it takes’ (more unlimited Trillions if necessary), doesn’t raise a whimper of protest from the Republicans or conservatives about massive debt encumbering the country, unprecedented money printing debasing the dollar, constant interference in the Holy Grail of American Capitalism - the ‘Market Forces’ – and the gross distortion of those market forces holding up failing investment funds, bonds, publicly listed companies, major corporations etc., etc…

Letting ‘the Big and the Wealthy’ to fail is not acceptable, but letting the little guys fail and fall where they will, is responsible American Capitalism - hence the great American wealth gap.

Now, this is not to say the Fed should not have done all it could to save the financial system and the economy with all the tools at its disposal; but it is to say that since these actions by the Fed go way beyond just saving ‘The System’ to actually creating massive windfalls in easy money for the wealthiest, like it did the last crisis and the subsequent years of endless support that resulted in endless financial engineering to benefit the executive and shareholder class, and the financial players with literally hundreds-of-Millions and Billions, while the workers struggle to keep their head-above-water with miniscule wage growth, that there should be some sense of fairness when it comes to bailing out the troubled, whether big or small.

Conservative values should not become hyper-active only when bailing out the little guys.

After hard negotiations a second relief package will be approved by the Congress, Senate and the White House, but it will be the minimum the Republicans can push through to assist ordinary Americans. Meanwhile, the Fed will be free and unopposed in buying ‘distressed assets’ of zombie companies, funds and financial players in unlimited amounts and can push up its balance sheet to as many Trillions as needed, to make sure the Big are truly ‘Too Big To Fail’, again.

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