The Wall Street Journal - 18.03.2020

A4| Wednesday, March 18, 2020 PWLC101112HTGKRFAM123456789OIXX ** THE WALL STREET JOURNAL.

THE CORONAVIRUS PANDEMIC

as high as 20% absent any in-

tervention by policy makers to

safeguard the U.S. economy.

Mrs. Pelosi, who spoke with

Mr. Mnuchin Tuesday, outlined

her requests for the third stim-

ulus package in a statement, as

Mr. Mnuchin met with Senate

Republicans.

Among other measures, Mrs.

Pelosi called for making long-

term leave available to workers

grappling with the virus and ex-

panding refundable tax credits

to self-employed workers.

Some of these items were in

the original bill pitched by

House Democrats last week but

were scaled back in the legisla-

tion that eventually passed the

House.

And Senate Democrats have

proposed their own $750 bil-

lion package for the third phase

of the response.

“I would say to my Republi-

can colleagues: we want to

work with you, you will have

different ideas, but our ideas

must be contained in a pack-

age,” said Sen. Chuck Schumer

of New York, the chamber’s

Democratic leader, whose plan

includes a moratorium on evic-

tions and foreclosures.

Administration officials and

lawmakers were discussing

which income brackets would

receive the direct payments. One

official said millionaires and bil-

lionaires would be excluded, and

the administration currently es-

timates that the amount per

adult would exceed $1,000.

After the meeting with Mr.

Mnuchin, Senate Majority

Leader Mitch McConnell (R.,

Ky.) said the chamber would

move to vote on the phase-two

House bill as soon as possible,

and immediately launch

broader stimulus negotiations.

Senate Republicans who had

concerns about the House bill

said that the Tuesday meeting

with Mr. Mnuchin had resolved

some of their concerns.

been hit hard by the outbreak,
and as much as $500 billion to
boost small businesses and for
other needs. The cash pay-
ments could eventually total as
much as $500 billion, one of
the officials said.
As the number of confirmed
cases climbs, Congress has
raced to pass legislation.
In phase one of the aid plan,
Congress passed and President
Trump, a Republican, signed
into law an $8.3 billion bill
funding vaccine development
and prevention efforts. Law-
makers are almost finished with
the second phase of legislation,
with a bill focused on workers
pending before the Senate fol-
lowing some late changes made
Monday to scale back a paid-
leave expansion. Lawmakers are
now charting out the third
phase of their response.
Mr. Mnuchin told Republican
senators on Tuesday that the
administration hopes to send
the first batch of checks to the
public by the end of April. He
added that the payments,
which could initially amount to
about two weeks of pay, would
be means-tested to ensure they
don’t advantage the wealthy,
according to people familiar
with his comments.
Mr. Mnuchin told GOP sena-
tors that the unemployment
rate, which was at 3.5% in Feb-
ruary, could potentially climb

ContinuedfromPageOne

Behind a flurry of activity
in Washington on Tuesday was
an increasingly urgent prob-
lem for a nation grappling
with the novel coronavirus
pandemic: The growing risk
that millions of businesses and
households won’t be able to
pay their everyday bills—rent,
payroll, utilities—as business
activity grinds to an unprece-
dented halt.
The Federal Re-
serve launched a program to
provide short-term loans to
businesses in commercial-pa-
per markets, while White
House officials and lawmakers
scrambled for ideas to get
funds into the private sector,
and the Treasury postponed
one of the biggest bills coming
due for anyone: individual in-
come taxes.
In a normally functioning
economy, paychecks and reve-
nues roll in for workers and
their employers, and they use
a good chunk of that money to
pay the bills they have coming
due. In the business world, it’s
called working capital.

Now as restaurants close,

airlines stop flying and streets

go empty, businesses and

households have a similar and

pressing problem: The money

just isn’t coming in, but bills

still have to get paid.

The financial system typi-

cally serves as a backstop.

Businesses use credit lines to

alleviate short-term funding

squeezes. A household might

draw from savings or tap a

home-equity line.

But those systems are be-

coming overloaded. It’s an es-

pecially pressing problem for

millions of low- and middle-in-

come households. Nearly 4 in

10 Americans don’t have the

savings in hand to cover an

unexpected, $400 expense

with cash, according to Fed

surveys.

Fed data show nonfinan-

cial businesses had $1.53 in

liquid assets like cash and se-

curities on hand for every $

in short-term liabilities in the

fourth quarter. That is down

from $1.80 when Lehman

Brothers collapsed in 2008,

but up from $1.34 during the

September 11, 2001, terrorist

attacks, according to Moody’s

Analytics. The more liquid as-

sets they hold, the better posi-

tioned they are to handle a

cash crunch.

The Fed took additional

steps to address the problem

Tuesday, throwing a rescue

line to commercial paper mar-

kets, where banks, money

market mutual funds and oth-

ers provide short-term loans

of a few days, weeks or

months directly to businesses.

The Fed will provide funds

to financial firms for up to

three months and take their

commercial paper as collat-

eral. The central bank hopes

that with a place to park their

commercial paper, lenders will

make more of it available in

markets. The program will be

backstopped by the U.S. Trea-

sury to cushion losses the Fed

might take in the process.

A pressing question is

whether Congress and the

White House can fill that void.

“We desperately need...a

dedicated pool of money that

is available to step in and sal-

vage viable companies that are

struggling,” Scott Minerd,

chief investment officer at

money-manager Guggenheim

Partners LLC, said Tuesday. A

global depression is possible

“if policy makers don’t act

quickly,” he said.

Some ideas—such as a broad

payroll tax cut—might not de-

liver funds quickly enough or

directly to the people in most

dire need to hold off the im-

pending cash crunch. For the

moment, the White House and

a growing number of lawmak-

ers seemed to be turning to

more immediate measures.

For starters, the Internal

Revenue Service will postpone

the April 15 tax-payment dead-

line. The Trump administra-

tion also said it backs a plan

to send checks directly to

Americans.

Sen. Mitt Romney (R., Utah)

on Monday backed giving each

American adult $1,000.

Among Democrats, Sens.

Cory Booker of New Jersey,

Michael Bennet of Colorado

and Sherrod Brown of Ohio

propose sending $2,000 to ev-

ery adult and child below a set

income, with future payments

in July and then quar-

terly, until unemployment lev-

els drop after an expected rise.

Last week, Reps. Ro Khanna

(D., Calif.) and Tim Ryan (D.,

Ohio) proposed sending a

check between $1,000 and

$6,000 to every American who

earned less than $65,000 last

year.

“To me, this is about cash,”

Mr. Ryan said.

—Asa Fitch, Richard Rubin

and Natalie Andrews

contributed to this article.

BYJONHILSENRATH
ANDNICKTIMIRAOS

Plans in Works to Help Pay the Bills

“My counsel is to gag and

vote for it anyway," Mr. McCon-

nell said to Republicans who are

voicing opposition to the second

aid bill, which is estimated to

cost more than $100 billion.

The House has left Washing-

ton for a recess, leaving much

of the legislative lifting to Sen-

ate Republicans as the Capitol

has closed to the public and

many staffers are working from

home. Republican leadership

and the administration hope to

move a bill through the Senate

quickly, perhaps as soon as the

end of this week.

Lawmakers also face new

health concerns. Two Colorado

lawmakers said Tuesday they

would self-quarantine. In sepa-

rate statements, Sen. Cory

Gardner, a Republican, and Rep.

Jason Crow, a Democrat, both

said they interacted with a con-

stituent who has Covid-19.

Sen. John Thune (R., S.D.),

the No. 2 Senate Republican,

said that direct cash assistance

to Americans is more popular

among the GOP than attempt-

ing to pass a payroll tax cut.

Any legislation in the Senate, to

reach the necessary 60 votes,

will require bipartisan support

to pass and move to the Demo-

cratic-controlled House.

Separate from the fiscal

stimulus package Mr. Mnuchin

is pitching, the White House

also plans to ask Congress to

approve an additional emer-

gency funding bill to provide

federal agencies with more re-

sources to combat the virus, ac-

cording to a senior administra-

tion official. The official said the

administration hadn’t yet de-

cided on the size of the request.

—Kate Davidson

and Natalie Andrews

contributed to this article.

Trump

Backs Aid

Package

Nurses wait for a patient to arrive for a Covid-19 screening at a clinic in Seattle on Tuesday.

KAREN DUCEY/GETTY IMAGES

UnderPressure

Ratioofbusinessshort-term

assetssuchascashand

securitiestoshort-termbills

thatarecomingdue.

2000 ’05 ’10 ’15 ’

1.

1.

1.

1.

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Note: Quarterly data doesn't include

financial firms.

Source: Moody's Analytics

ministers said that already

announced fiscal-stimulus

plans amounted to 1% of the

bloc’s output in 2020 and that

liquidity support through gov-

ernment guarantees and de-

ferred tax payments was at

least 10% of the EU’s GDP.

“These figures could be

much larger going forward,”

the ministers said.

At the onset of the financial

crisis in late 2008, the EU

pumped €200 billion ($

billion) into the economy,

around 1.5% of GDP.

France and the Netherlands

on Tuesday became the latest

countries to open the spigot.

France promised €45 billion in

immediate aid for businesses

and employees hit by the coro-

navirus pandemic, which is

slowing or shutting down

swaths of the global economy.

French Finance Minister

Bruno Le Maire said provi-

sional predictions show the re-

sponse to the coronavirus will

slash 1% from France’s gross

domestic product this year.

“This economic war will be

long-lasting and violent,” Mr.

Le Maire said on French radio.

The Dutch government an-

nounced a raft of measures to

support companies, ranging

from tax exemptions to having

up to 90% of wages paid by

the government. The measures

are expected to cost €10 billion

to €20 billion over the next

three months, but that sum

could increase, said Finance

Minister Wopke Hoekstra.

The move followed the cri-

sis response measures of Ger-

many, Europe’s biggest econ-

omy and so far the country

that has pledged the greatest

action. Government offi-

cials said last week they would

provide potentially unlimited

government financing for dis-

rupted businesses, including

measures that helped Germany

emerge from the financial cri-

sis a decade ago largely un-

scathed.

Central to Berlin’s plan is a

€550 billion loan and loan-

guarantee program for busi-

nesses of all sizes, though the

government stressed that it has

no limit on financial support.

But Italy and Spain, two na-

tions currently hit hardest by

the virus, have been more cau-

tious. Italy’s government an-

nounced a €25 billion spending

plan on Monday that included

additional funds for health

care, and provisions to suspend

tax payments and provide

mortgage relief to affected

businesses and households.

Spain on Tuesday announced

up to €200 billion in support,

including private funds the gov-

ernment hopes to mobilize.

Only €17 billion of the total

would be direct support.

European governments have

pledged hundreds of billions of

euros to help economies, com-

panies and workers hit by the

coronavirus, applying tools de-

veloped during the euro crisis

and casting aside strict prohi-

bitions on state subsidies.

The stimulus moves, which

come on top of increased gov-

ernment spending automati-

cally triggered during a

downturn, could help fiscally

sound countries including Ger-

many and the Netherlands to

weather the growing economic

crisis. But it might not allevi-

ate hardship for weaker coun-

tries such as Italy.

That divergence could ag-

gravate an economic gap at

the heart of Europe’s currency

union if it widens the gulf be-

tween the region’s strong and

weak economies, which in the

long term could further cloud

the single currency’s future.

Only a small amount of the

total amount pledged so far is

stimulus spending that will go

directly to business or workers,

and most are commitments

that may never be drawn on.

The amounts are designed both

as direct help and to boost con-

fidence among banks, employ-

ers and investors.

European Union finance

BYTOMFAIRLESS

ANDLAURENCENORMAN

Europe’s Fiscal Remedies Risk

Deepening Its Economic Gaps

The Federal Reserve said it

would start making loans to

American corporations, re-

launching a financial-crisis-era

tool to help calm short-term

debt markets that have faced

intensifying strains in recent

days.

The Fed trained its sights

Tuesday on dysfunction in the

$1.1 trillion market for short-

term corporate IOUs called

commercial paper. Companies

use commercial paper to fi-

nance their day-to-day business

operations such as payroll ex-

penses.

While the Fed can’t buy cor-

porate debt or lend directly to

households and businesses, it

can invoke emergency powers

to establish lending facilities

that, in turn, extend credit.

“The commercial paper mar-

ket has been under considerable

strain in recent days as busi-

nesses and households face

greater uncertainty in light of

the coronavirus outbreak,” the

Fed said.

By launching the Commercial

Paper Funding Facility, the Fed

bank is trying to encourage in-

vestors to return to that market

to ensure eligible issuers can

roll over maturing obligations.

The central bank’s facility will

purchase three-month debt

from firms with high credit rat-

ings. The Fed deployed a ver-

sion of the tool between 2008

and 2010, during and after the

financial crisis,

To create the facility, the Fed

had to invoke special powers by

citing “unusual and exigent cir-

cumstances” to authorize one of

its reserve banks, the New York

Fed, to extend credit. In 2010,

Congress required the Fed to

seek approval from the Treasury

secretary before using these so-

called 13(3) powers, named for

the section of its charter that al-

lows it to stand up such last-re-

sort programs.

Treasury Secretary Steven

Mnuchin gave his approval to the

program Tuesday. The Treasury

will also provide $10 billion from

a pool of money it retains called

the Exchange Stabilization Fund,

which has around $94 billion in

it, to cover credit losses for the

Fed.

The commercial paper market

has been strained as money-mar-

ket mutual funds and other in-

vestors seek to sell commercial

paper at the same time that de-

mand for short-term borrowing

is rising from companies that

face unanticipated, virus-related

funding needs.

Already, the pandemic has de-

livered a blow to corporate credit

markets by raising concerns that

borrowers will be unable to

make good on their obligations

because they face falling reve-

nues. Clogged commercial-paper

markets could lead companies to

draw down their bank lines of

credit, which could in turn raise

funding needs for banks.

The Fed said it would lend to

commercial paper issuers at a

rate of 2 percentage points above

overnight lending rates for three

months at a time. The facility

will last for at least one year.

“The terms are not easy. It

was a mild disappointment to

the market,” said Julia Coronado,

a former Fed economist and

founder of economic-advisory

firm MacroPolicy Perspectives.

While the rates offered by

the Fed might look high rela-

tive to traditional market

prices, the fact that many issu-

ers haven’t been able to borrow

at any rate in recent days sug-

gests the facility will be helpful,

said Roberto Perli, an econo-

mist at research firm Corner-

stone Macro.

Later on Tuesday, the Fed

announced another 13(3) lend-

ing program that will enable 24

large financial institutions

called primary dealers, which

function as the Fed’s exclusive

counterparties when trading in

financial markets, to seek loans

of up to 90 days.

BYNICKTIMIRAOS

Fe d Ac t s

To Ease

Corporate

IOU Strain

 Bank of England governor is

urged to close markets...... B

Treasury Secretary

Mnuchin gave his

approval to the

program Tuesday.

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