Reading an article in The New York Times about the COVID-19 stimulus bill, I stumbled on this detail
the Fed can take a limited amount of funds and deploy them widely: The central bank only needs the funds as a guarantee against losses, meaning the 425 billion could be leveraged to support far bigger programs. Treasury Secretary Steve Mnuchin in Sunday seemed to suggest that the backstops could amount to 4 trillion.
As I’m someone who hasn’t much of a background in economics and who has only heard about this yesterday, can you explain how the Fed will leverage this money tenfold? Is there some sort of special, emergency authority under which this is all possible, and what would this leverage, or borrowing, entail exactly?
Thank you for your time!