Trump Told Mnuchin to Go Big, and a $1 Trillion Stimulus Emerged

(Bloomberg) -- Steven Mnuchin had an ominous message for Senate Republicans gathered Tuesday in a marble-clad meeting room in the Russell office building: we need to pass a virus stimulus bill, or the U.S. could be looking at a 20 percent unemployment rate.

The message was a far cry from little more than a week ago, when Trump and his aides had declared the economy was resilient enough to withstand the coronavirus outbreak. That line had changed, and it fell to Mnuchin to brief the Republicans, who had scattered themselves around the red-draped chamber to maintain their social distancing.

Mnuchin said the fallout actually could be worse than the 2008 financial crisis, according to three people familiar with his remarks, and called for a package of more than $1 trillion that would include direct payments to everyday Americans.

His tone echoed the sudden urgency of his boss, President Donald Trump, who on Monday asked Americans to essentially shut down public life in the country -- stay away from restaurants, bars and gatherings of more than 10 people; educate your children at home, if practical.

And that number -- $1 trillion -- had come straight from Trump himself.

At a White House meeting Monday night, Trump reviewed Mnuchin’s plan for an $850 billion stimulus. Why not make it a trillion, Trump said. If you want to go big, go big, the president remarked, according to three people familiar with the meeting, who like others cited in this story asked not to be identified discussing internal White House deliberations.

Mnuchin assembled a $1.2 trillion plan over a series of phone calls with lawmakers that stretched from Monday evening into Tuesday morning.

Whirlwind Speed

The sheer size of the proposal and the whirlwind speed at which it appeared took some senators aback. At the White House, there was a feeling the time had come for a new approach.

For nearly two weeks, Trump had watched a parade of despair through the West Wing. Airline executives told him planes were empty. Wal-Mart Inc. chief executive Doug McMillon said stores were being depleted by panicked hoarding. His coronavirus task force had briefed him on a range of projections for the spread of the disease -- including one by researchers at Imperial College in Britain who predicted that 2.2 million Americans could die if the government did nothing and the outbreak was uncontained.

Even Trump’s son, Barron, had asked his father how bad it would get.

So it was time for Mnuchin to head to Capitol Hill.

Senate Majority Leader Mitch McConnell had just decided to forge ahead with a vote on a separate bill, negotiated last week by Mnuchin and House Speaker Nancy Pelosi, to provide workers with paid sick leave. That legislation itself would cost more than $100 billion.

The assembled Republican senators had largely spent their careers branding themselves as fiscal hawks. Many had criticized bailouts of banks and the auto industry during the George W. Bush and Barack Obama administrations. Gone from the package was a payroll tax cut that some Republicans had long advocated, replaced by direct payments to Americans -- checks, essentially. Even close Trump allies like Lindsey Graham balked.

The shift was particularly disorienting considering that the president just days ago had downplayed the potential impact of the virus and said that bailouts for the airline and cruise industries might not even be necessary.

One administration official said that Trump’s aides had received alarming information from businesses in recent days, including data from credit card companies that showed purchases falling off a cliff. Americans simply aren’t buying anything, the official said.

The White House is aware that the Dow Jones Industrial Average, a benchmark the president has long treated as a barometer for his own presidency, is hovering near its level on Trump’s inauguration. Trump’s aides are conscious all the stock market gains under his presidency are likely gone, but they’ve given up on defending that calling-card of his re-election campaign and are focused on responding to the growing crisis in the real economy, the official said.

The official said that recent conversations with lawmakers have been laced with fear and concern, and a desire for dramatic action. The White House hopes to pass a stimulus plan through the Senate by Saturday, the official said.

But even Tom Cotton, an Arkansas Republican who has been one of the loudest voices on Capitol Hill calling for an aggressive response to the outbreak, told his colleagues they should consider hitting the pause button to ensure the legislation is written so that Americans receive relief as soon as possible.

The speed and scale of Trump’s course-correction underscored the growing realization to everyone in the room that the coronavirus now poses an existential threat to the health and security of nearly every American. Fiscal conservatives like Cotton, Utah’s Mitt Romney, and Missouri’s Josh Hawley were signaling support for the president’s plan to paper the nation with direct payments from the U.S. Treasury for the first time since the Bush tax cuts.

Leaving the meeting, Mnuchin told reporters: “I know there’s been some rumors of the number. It’s a big number.”

More and more economists including those from Wall Street’s biggest banks have declared that the outbreak has already triggered a global recession. The debate is no longer if it will happen, but how long it will last and how deep it will run.

Efforts to slow the pace of infections has shut down swaths of economies around the globe and data from China -- the first to be hit by what is now a pandemic -- show a harder hit to its economy than originally projected.

Goldman Sachs Group Inc. forecast in a note Sunday that the U.S. economy will shrink 5% in the second quarter after a 0% gain in gross domestic product growth in the first three months of the year.

The administration official said Trump’s advisers still hope a recession can be avoided -- that even if growth retreats in the second quarter, the economy will strongly rebound in the third.

Slow-Motion Response

But before this week, Trump’s response to the pandemic unfolded in slow motion. He initially said $2 billion would be enough to blunt the outbreak, and just last week he had advocated a business-as-usual approach. Less than two weeks ago, top Trump aides Larry Kudlow and Kellyanne Conway had described the virus as “contained” in the U.S.

At the time, fewer than 1,000 cases had been identified. On Tuesday, there had been more than 6,000 in the U.S. and 108 deaths, according to a count by Johns Hopkins University. The president now finds himself grappling with the greatest test of his competence and leadership since entering office, a crisis that risks the lives and livelihoods of millions of Americans just months before voters decide whether to return him to the White House.

On Monday, after prospects for a swift end to the crisis had long since evaporated, Kudlow told reporters the administration was considering between $400 billion and $800 billion in stimulus. It wasn’t until the political tipsheet Politico Playbook flagged the $850 billion figure high in its Tuesday edition that official Washington seemed to realize Trump was willing to spend a staggering amount to beat the outbreak.

“The president has instructed his team to look very expansively on what we need to do and not be impeded by the potential price tag of what’s necessary here,” White House Legislative Director Eric Ueland said.

The news was welcome on Wall Street, offering a rare reprieve from a weeks-long sell-off in markets that has erased the bulk of gains during Trump’s presidency.

Trump denied Tuesday that any single development or projection had snapped him to attention, following earlier statements that labeled the outbreak “totally under control” and blamed his political enemies and the media for overstating the threat.

But he and other administration officials have acknowledged that their conversations with leaders across a wide span of industries have painted a vivid picture of an economy in duress. Casinos, airlines, cruise companies and mortgage banks are among the many industries that have asked the White House for bailouts. The White House is asking lawmakers for $200 billion in what’s called stabilization assistance as part of the stimulus plan.

New Urgency

The new urgency is evident even in the White House’s day-to-day operations. Access to the president has been curtailed, with his top aides advising administration staff and other visitors who once could easily enter the West Wing that they should conduct their business by phone or video conference instead, according to two people familiar with the matter.

Trump’s national security adviser, Robert O’Brien, rescheduled and then canceled a key meeting Tuesday on the U.S.-China relationship. Trump wanted his staff focused on coronavirus, according to one person familiar with the matter.

And on Capitol Hill, lawmakers worried that unemployment claims are spiking and the bars, restaurants, and theaters woven into the fabric of American life might not survive a prolonged shutdown. Ohio reported more than 48,000 unemployment claims over the past two days, compared to under 2,000 during the same stretch a week prior.

“We’re talking about an effort to control this virus that requires us to tell businesses to close in order to save lives,” said Florida Senator Marco Rubio, a Republican. “That is an extraordinary development. This is not an economic downturn, this is not some recession or some normal event that happens in the cycles of an economy. This is an extraordinary, unprecedented challenge.”

McConnell vowed to keep the upper chamber in session until a “major” coronavirus response had passed, as lawmakers in both parties expressed alarm at the near-empty airplanes that returned them to Washington this week.

Republican lawmakers also tossed aside concerns with the bill Pelosi and Mnuchin had negotiated, with McConnell announcing the upper chamber would pass the legislation without making changes despite the objections of some Republicans over how it would impact small businesses.

Taken collectively, the aggressive actions revealed not only the pressure on Washington to act, but the depth of GOP concern about how the economic impact could influence the upcoming election.

Trump has always been acutely aware of the role a thriving economy plays in his re-election chances, and his proposed stimulus appeared designed to flood recovery dollars to Americans well before they head to the polls. The administration made clear its desire to get checks to mailboxes quickly.

“What we’ve heard from hardworking Americans, many companies have now shut down, whether it’s bars or restaurants,” Mnuchin said. “Americans need cash now, and the president wants to get cash now. And I mean now.”

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