Sanders Repeats Debunked Claim on Fed Liquidity

Fed's transfer of money is not a guarantee of income, but a loan

• March 15, 2020 8:56 pm


Sen. Bernie Sanders (I., Vt.) on Sunday doubled down on the misleading claim that the Federal Reserve's emergency injection of money into financial markets earlier in the week was unfair to average workers.

"What I worry about is not only how we respond aggressively to the virus, but also how we respond aggressively to the economic fallout of a global recession," Sanders said. "What happens to the millions of workers who may end up losing their jobs? So what I think we've got to do right now, is if Trump can provide, the Fed can provide a trillion and a half for liquidity for the banks, what we've got to say to every worker in the America is, ‘Don't panic, you'll be able to pay your mortgage, you're going to get a check, you're going to be made whole.'"

Sanders's statements, along with those made by both him and allies earlier in the week, misleadingly suggest that the Federal Reserve's transfer of money earlier in the week was equivalent to a federal guarantee of income or mortgage payment. In reality, the Fed's actions are more akin to a loan, and Sanders's suggestion that they suggest unequal treatment for regular Americans has been panned by even those on the left.

On Thursday, the Federal Reserve announced that it would spend $1.5 trillion in the market for "repurchase agreements," a.k.a. the "repo" market. In this market, one firm sells a high-quality security, e.g., a Treasury bond, to another firm for cash and agrees to "repurchase" the security for the cash value plus interest. The net effect is a short-term loan. The Federal Reserve's injection of $1.5 trillion acts as fast cash for financial institutions, keeping liquidity flowing through the financial system under times of duress.

Critically, repo agreements are not like a gift, but a loan. Analogous support for workers would involve temporarily loaning them the value of their wages or mortgage payments, with the expectation that they would pay back the full value plus interest.

These facts did not forestall Sanders's comments Sunday, nor earlier in the week. On Friday, Sanders responded to news of the liquidity injection by taking to Twitter, writing, "When we say it's time to provide health care to all our people, we're told we can't afford it. But if the stock market is in trouble, no problem! The government can just hand out $1.5 trillion to calm bankers on Wall Street."

Sanders ally and endorser Rep. Alexandria Ocasio-Cortez (D., N.Y.) made a similar argument, noting that "FYI, the amount that the Fed just injected almost covers all student loan debt in the U.S."

Even left-leaning outlets called these comments inaccurate. Slate labeled them "misleading," while Vox settled for the more tepid "not a very good comparison to make."