Fed is Lender of Last Resort for Illinois

Wirepoints reports Illinois set to borrow from Fed’s “lender of last resort” facility a second time

Illinois is set to borrow several billion from the Federal Reserve’s Municipal Liquidity Fund (MLF) for a second time if a new U.S. stimulus package and a progressive tax hike scheme for Illinois don’t come through, according to comments from Illinois Gov. J.B. Pritzker.

Illinois already borrowed $1.2 billion from the MLF earlier this year in an attempt to close some of the state’s 2020 budget shortfall.

The borrowing is significant since Illinois is the only state in the country to tap the MLF. The Fed created the MLF in April to be a “lender of last resort,” where cities, states and other government entities can go if they can’t raise money as a result of COVID-19. 

Covid Not The Problem

The MLF is for states and municiplaitioes that cannot raise money due to Covid.

Finances, not Covid are the problem in Illinois.

Illinois’ Alleged Balanced Budget 

The Illinois constitution requires a balanced budget.

The Illinois budget is “balanced” by borrowing money year after year. 

Governor Pritzker “balanced” the fiscal year 2021 budget by borrowing $5 billion from the Fed.

$261 Billion Shortfall

$261 Billion Shortfall

Year in, year out the numbers keep adding up. Moody’s new estimate of Illinois pension shortfall increases to $261 billion

Moody’s estimates the shortfall in Illinois’ five state-run pension funds will jump to $261 billion in 2020. The rating agency, in “Medians – Pension and OPEB liabilities fell in fiscal 2019 ahead of jump in 2020,” says a drop in interest rates and lower investment returns will worsen Illinois’ shortfall. 

Moody’s estimation for all 50 states makes Illinois’ $261 billion shortfall the worst in the country. 

Illinois’ shortfalls will be even larger when

Dallas Federal Reserve President Robert Kaplan said on Thursday he sees no need to expand the central bank’s asset purchases to bolster the economic recovery and instead signaled support for winding stimulus down when the coronavirus crisis eases.

“I’d be skeptical about the benefits of doing more,” Kaplan told Bloomberg Radio. Long-term interest rates are already low, and trying to push them down further by adding to the $120 billion in bonds the Fed is already purchasing each month would do little to help the real economy.

CORONAVIRUS WILL DICTATE U.S. ECONOMY’S PATH: FED’S WILLIAMS

Kaplan added “the bond-buying needs to curtail, the Fed balance sheet growth needs to curtail,” when the crisis starts to lapse.

“I don’t think it’s healthy for the markets to be addicted, or too reliant, on Fed presence … it engenders fragilities.”

Robert Kaplan, president and chief executive officer of the Federal Reserve Bank of Dallas, is seen in Ruston, La., April 11, 2016. (Getty Images)

That view may be unpopular with investors, who have come to see the Fed’s balance sheet as expanding without limits even as Congress and the White House have reached an impasse on fiscal stimulus.

The Fed has bought about $3 trillion in bonds since the start of the crisis to help stabilize financial markets and boost the economy, and has pledged since June to continue to buy “at least” at its current pace for the coming months. Some investors see that language as signaling a readiness to expand its $7.1 trillion balance sheet at an even faster clip to further support the economy.

It’s unclear how widely shared Kaplan’s desire to limit the expansion of bond buying is, but several of his colleagues have also addressed

Federal Reserve officials expressed concern at their most recent meeting that the US economic recovery could falter if Congress fails to approve another round of pandemic relief.

Minutes of the meeting showed that officials believe the economy was growing faster than expected. But they based their forecasts on expectations that Democrats and Republicans would resolve their differences and provide more economic aid, including expanded unemployment benefits and help for small businesses.

The minutes said that “most forecasters were assuming that an additional pandemic-related fiscal package would be approved this year, and noted that, absent a new package, growth could decelerate at a faster-than-expected pace in the fourth quarter.”

The prospects for a new package being passed before the Nov. 3 elections, however, have significantly diminished with President Trump’s decision to end negotiations with Democrats. Trump has instead proposed that Democrats approve individual rescue items, such as money for ailing airlines and another round of $1,200 checks for most adults, rather than a comprehensive aid package.

Federal Reserve chairman Jerome Powell warned in a speech Tuesday of potentially tragic consequences if Congress and the White House do not provide further assistance, saying “the [economic] expansion is far from complete.”

The minutes covered the Fed’s Sept. 15-16 meeting, in which officials left their key policy rate unchanged at a record low near zero and signaled that they expected to keep rates at ultra-low levels at least through 2023.

The Fed’s statement incorporated a policy change to allow inflation to rise above its 2 percent target for a period of time. That change is seen as allowing it to keep interest rates lower for a longer period.

The September statement was approved on a 10-2 vote. The minutes recognized large problems in trying to forecast the path of the economy.

“Participants continued to

The comments from the leading Fed officials were the latest evidence of the central bank’s growing attention to persistent inequality in the economy — a gap that appears to be widening during the coronavirus pandemic. Black and Hispanic workers have been hit harder by the economic fallout from the Covid-19 lockdown than white workers.

The Fed itself has faced criticism for inadvertently exacerbating inequality because its emergency policies are designed to backstop financial markets and allow companies to borrow money. That has boosted the stock market, most of whose value is owned by the wealthiest Americans, even as some major companies have continued to lay off workers. Just 1.2 percent of the value of stocks is held by Black families and 0.5 percent by Hispanic families, according to quarterly Fed data.

The central bank officials Wednesday said that now is the time to face uncomfortable questions about race and the economy.

“First, we have to listen more,” Rosengren said. “This is an attempt to be listening more.”

They said that while the Fed has limited capabilities to intervene in targeted areas of the economy with monetary policy — it can’t provide grants or unemployment benefits like Congress — it does wield regulations, data and influence with other policymakers. Fed Chair Jerome Powell has repeatedly called on Congress to deliver more emergency aid to the most vulnerable Americans, including in a speech on Tuesday.

Bostic said it was important for the Fed to signal with its actions that it represents all Americans.

“We’ve got to think about how do we lean in to a number of areas that we may not actually have the specific authorities or policies that drive it,

The meeting minutes underscore how Fed leaders view another stimulus package — one that reaches households, businesses and local governments still on the brink — as essential to a strong and stable recovery.

At the meeting, Fed leaders updated their estimates on unemployment in the coming years to reflect a sense of optimism that people were returning to work faster than expected. But in many cases those projections factored in some measure of more fiscal aid, the prospects of which were thrown into chaos Tuesday after Trump abruptly called off negotiations before then continuing to push for more talks on narrower targeted aid.

“If future fiscal support was significantly smaller or arrived significantly later than they expected, the pace of the recovery could be slower than anticipated,” according to the Fed minutes.

Fed policymakers also warned that, while the Cares Act was crucial for providing benefits to millions of families, Congress’s “support so far for households, businesses, and state and local governments might not provide sufficient relief to these sectors,” the minutes read. Fed leaders pointed to “the extent and timing of additional fiscal support” as another source of uncertainty, along with the economic toll of school and small-business closures, as well as bankruptcies.

On Tuesday, Fed Chair Jerome H. Powell again called on Congress to keep up the support, especially for pockets of the economy that were not experiencing a rebound. Speaking at the annual meeting of the National Association for Business Economics, Powell said that too-little support could ultimately lay a foundation for household insolvencies, business bankruptcies and meager wage growth.

“By contrast, the risks of overdoing it seem, for now, to be smaller,” Powell said Tuesday. “Even if policy actions ultimately prove to be greater than needed, they will not go to waste.”

But on Tuesday afternoon,