The fiscal stimulus bill introduced by Senate Republicans on Thursday includes changes that would allow the Treasury Department to use its exchange rate stabilization fund to guarantee money market mutual funds. It would also appropriate almost $300 billion for small-business loans. 

The Senate proposal would lift a restriction put on the Treasury’s Exchange Stabilization Fund by the law that created the Troubled Asset Relief Program during the 2008 financial crisis. That provision prohibited the secretary from establishing “any future guaranty programs for the United States money market mutual fund industry.”

The Federal Reserve announced late Wednesday that it was creating a Money Market Mutual Fund Liquidity Facility backed by $10 billion from the Exchange Stabilization Fund.

The Treasury Department used the fund to backstop the money market funds after Lehman Brothers’ collapse in 2008 threw the sector into chaos.

The purpose of the Exchange Stabilization Fund is to allow the Treasury secretary to maintain stable exchange rates by dealing in gold, foreign currencies and other credit instruments. 

Small business

The proposal would also appropriate $299.4 billion for Small Business Administration loans to companies with fewer than 500 employees. The loans would be capped at the price of covering some of the business’s monthly costs — payroll, debt payments, mortgage and rent — for up to four months, to a maximum of $10 million.

To the extent the companies use the loans to cover only payroll, the debt would be forgiven, but firms can also use them to cover other regular operating expenses and then pay them back. 

While the forgivable loans would help many small businesses stay open during the coronavirus-driven slowdown, they might not do enough if customers maintain maximum social distancing, said Stan Veuger, a resident scholar at the conservative American Enterprise Institute. “For some businesses, it’ll be good enough, but not the ones getting basically no revenue.”

Veuger said he would have preferred to see the forgivable loans get more funds and fewer restrictions, allowing the money to be used for other fixed costs like rent, while retaining the condition that the firms don’t cut staff. He argued it was more efficient and effective than the payments to individuals that are also part of the bill. 

“Instead of a guy who makes $3,000 a month losing his job and getting a $1,000 check, the guy would continue to get his $3,000 a month,” he said. “It’s a way to target the people right now, these people in industries that are basically not functioning right now.”

Skanda Amarnath, director of research at the left-leaning think tank Employ America, said the mailed checks and SBA loans are the right idea, but not as a one-time action. He said policymakers should “build in policies that automatically adjust, so if this is worse than people realize there are ways to preserve funding and preserve payrolls.”

Veuger agreed, saying the fiscal stimulus should continue until the national emergency declaration ends.

Some Democrats, including House Financial Services Chairwoman Maxine Waters of California, have proposed just that, calling for ongoing measures until the pandemic is contained.

The Senate GOP’s proposed program would operate under the SBA’s existing Section 7(A) loan program, which is operated through banks, credit unions and other lenders.

The SBA would also get $325 million to staff up its own offices to administer the program, and $265 million in grants for businesses particularly affected by the coronavirus, such as those shuttered by governments or facing supply chain disruptions.