There has been lots of talk about the potential impact tapering QE (or eliminating it altogether) might have on the real estate and stock markets.
But what happens to the US government if the Fed stops buying US Treasuries?
The Fed currently buys up to 90% of the newly issued treasury bonds. -essentially funding the US deficit spending.
Who will buy T-Bonds in the amounts ($45 billion a month) and at the prices the Fed is currently them for if the Fed stops buying them? The Chinese? The Japanese? Institutional investors?
If there is no buyer what happens to interest rates and what impact does it have the government’s ability to borrow to fund its activities?
Will the government just cut spending? raise taxes? could they do enough of either to pay for the debt incurred and the ongoing debts?
In this week’s podcast Ryan and Louis stumble upon a possible answer.