Thread by @jnordvig

Lots of confusion about why Mnuchin is cancelling certain Fed emergency credit facilities, and what it means

couple of observations...

First, the facilities in question have only small current commitments outstanding (summing them up <$18bn). This is very small in a macro context.

full list attached
federalreserve.gov/publications/f…

Second, it is not very helpful to have the Treasury and the Fed in open disagreement about this type of issue. This probably explains why markets reacted negatively.

Third, what happens to the funds now? There seems to be no clear plan. But it is up to Congress how to 'reappropriate', with the usual political issues involved

@stevenmnuchin1 said as much to Bloomberg

https://twitter.com/SalehaMohsin/status/1329560870553325568

Fourth, once the funds have been spent, it will be hard to secure fresh funds to backstop Fed facilities. Hence, if there is a need to put such credit facilities in place under a Biden administration, it may be tricky/a slow process to get it done.

The key bit is probably whether Congress will be able to spend these funds in a sensible way, and quickly. But that issue is subject to the usual 'gridlock' issues, and we have not learnt a lot about that prospect today. I will leave it at that. The US is a complex country. END