We've had this discussion before, haven't we? What incentive is there for politicians to control spending if the Fed is going to buy the debt, or create 0% money for Wall Street to buy it? I assure you - when the next recession hits and the US Gov't budget deficit hits $1.5 Trillion, the Federal Reserve is going to be buying massive amounts of Gov't debt in the name of its "mandates" and stabilization.
As to interest rates, the Fed directly sets short term rates, but especially over the last 7 years, has intervened directly to push down long term rates. Its "Operation Twist" bought long-term bonds and sold short-term. Its massive purchases of GSE had the direct effect of pushing down long-term housing interest rates. To say "the market" determines long term rates is disingenuous, when the Federal Reserve IS the market.
“We’ve had this discussion before, haven’t we? What incentive is there for politicians to control spending if the Fed is going to buy the debt, or create 0% money for Wall Street to buy it?”
Don’t recall discussing it before but it’s possible.
The Fed used to be prohibited from buying debt directly from the Treasury. They could only buy it on the secondary market. Don’t know if that’s been changed. Of course the real trouble was created when Nixon cut the last link to gold which served as an outside brake on credit creation.
” To say “the market” determines long term rates is disingenuous, when the Federal Reserve IS the market.”
The bond market is much bigger than even the Fed, and the Bond Vigilantes can discipline the Fed if they choose to do so as they demonstrated many times in the 70s. My assumption is that bond traders are okay with what the Fed has been doing or they would be refusing to buy Treasuries at such low rates.