In the last few years, the only real buyer of government bonds has been the federal reserve. Historically, the federal reserve was not even allowed to purchase government bonds. In addition, it certainly wouldn’t have been able to become the primary purchaser without quantitative easing. However, the federal reserve is planning on backing off of quantitative easing, and that spells trouble for the government, and they know it.
Two policy changes this year indicate that the federal government knows that it is in trouble. The first is the myRA account announced at the State of the Union speech. This is a special retirement account being sold to lower-income Americans that can only contain *one* investment type. You guessed it – government bonds. The goal of this program is not to help poor people get retirement accounts. The goal is to sucker the poorest Americans into financing the government’s debts. Why? Because we can’t find anyone else to do it.
The second policy change is the increase in the Social Security Administration to pursue old debts, and take the money from relatives of the debtor. In some cases, they are withholding tax returns from people because the social security administration overpaid a relative of theirs 30 years ago. So, not your debts, but a relative’s debts. And not a recent debt, but one 30 years ago. This means that as quantitative easing starts to fade, the federal government is going to start doing increasingly panicked measures to increase their cash, because they have run out of people to finance their borrowing.
No, just to point out, I think that removing quantitative easing is a good thing. The problem is that it will reveal just how poorly managed our country and our economy have been, and it will hurt bad. It’s a necessary step for healing, but the transition is going to be a ride that no one will ever forget.