” We have a Federal Reserve that can create debt at will and manipulate interest rates, to support the massive nanny state.”
Congress creates the debt. The Fed can monetize it, not create it.
The Fed can set the shortest term interest rates, the overnight loan rate to banks. The bond market and bond vigilantes determine long term rates.
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.