Why the Federal Reserve Should Grant Zero-Interest Loans to Local and State Governments

Our states and cities are facing devastating cuts due to the pandemic. To prevent that, let’s cancel Wall Street.

Saqib Bhatti

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The harm that Covid-19 is wreak­ing on the econ­o­my has the poten­tial to cause sus­tained dam­age for years into the future. With ris­ing demand for pub­lic ser­vices in the face of wide­spread job loss­es and insuf­fi­cient help from the fed­er­al gov­ern­ment, the cat­a­stroph­ic domi­no effect of the pan­dem­ic on the econ­o­my is just begin­ning. And instead of beef­ing up sup­port to strug­gling res­i­dents, elect­ed offi­cials nation­wide — many begin­ning to pre­pare their bud­gets for the next fis­cal year — are threat­en­ing dev­as­tat­ing cuts to pub­lic ser­vices. We know from recent his­to­ry that these cuts will be tar­get­ed in the same com­mu­ni­ties of col­or that have already borne the brunt of the pandemic’s casualties.

It doesn’t have to be this way. Even as they pre­pare to slash ser­vices, states and cities will con­tin­ue to pay $160 bil­lion in annu­al inter­est straight into the pock­ets of Wall Street investors. But by replac­ing this debt with direct, zero-inter­est loans straight from the Fed­er­al Reserve to local and state gov­ern­ments, that $160 bil­lion now spent on inter­est pay­ments could instead be direct­ed towards des­per­ate­ly need­ed essen­tial ser­vices such as edu­ca­tion, hous­ing, health­care and transportation.

It’s time to, as we put it, #Can­cel­Wall­Street, and instead focus on bol­ster­ing the ser­vices that can help pro­tect our com­mu­ni­ties going forward.

Remov­ing the inter­est bur­den from state and local gov­ern­ments would more than pay to keep ser­vices ful­ly fund­ed, plug­ging bud­get holes for every town in the coun­try. Addi­tion­al­ly, accord­ing to a new report from Action Cen­ter on Race and the Econ­o­my, that mon­ey could help 13 mil­lion fam­i­lies avoid evic­tion, or pay for free child­care for every work­ing fam­i­ly in the country. 

Now more than ever, elect­ed lead­ers are respon­si­ble for pol­i­cy and bud­get solu­tions that will pro­vide imme­di­ate, effec­tive help for the peo­ple they serve. With con­tin­ued unem­ploy­ment or under­em­ploy­ment, the sus­tained need for Covid-19 test­ing and treat­ment, the costs asso­ci­at­ed with dis­tance learn­ing for stu­dents and teach­ers, and much more, it’s crit­i­cal that we iden­ti­fy where pub­lic mon­ey is being wast­ed and where it could instead be used to address the mul­ti­ple crises work­ing peo­ple face. The last place our tax­pay­er dol­lars should be going is to Wall Street investors. That’s why we need the Fed­er­al Reserve to step in. 

Two of the nation’s biggest cities are already work­ing on this idea. One res­o­lu­tion was recent­ly intro­duced in Los Ange­les by Coun­cilmem­bers Bob Blu­men­field and Mike Bonin, and a sim­i­lar res­o­lu­tion will be intro­duced at the Chica­go City Council’s next meet­ing on Octo­ber 7. The two cities would each save over $1 bil­lion per year, respec­tive­ly, if relieved of these harm­ful and unnec­es­sary inter­est pay­ments to Wall Street. 

As I’ve writ­ten in these pages before, the entire munic­i­pal lend­ing sys­tem is a scam per­pe­trat­ed by wealthy banks on the backs of tax­pay­ers. Rather than pay their fair share in tax­es, the wealthy lend that mon­ey to states and cities and charge inter­est for it, dou­bly hurt­ing tax­pay­ers by less­en­ing the tax base and siphon­ing repay­ment mon­ey away from the bud­gets of essen­tial services.

It’s time for the Fed­er­al Reserve to pro­vide state and local gov­ern­ments with the financ­ing they need to avoid harm­ful bud­get cuts that will make eco­nom­ic recov­ery even more dif­fi­cult — and harm Black, Lat­inx and Indige­nous com­mu­ni­ties in par­tic­u­lar. Elect­ed offi­cials across the coun­try should join the effort to #Can­cel­Wall­Street, treat bud­gets like the moral doc­u­ments they are, and pri­or­i­tize ser­vices that will save lives. 

Saqib Bhat­ti is the Co-Exec­u­tive Direc­tor of the Action Cen­ter on Race & The Econ­o­my and the Direc­tor of the ReFund Amer­i­ca Project.
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