The Fed is going to buy some government bonds.
Now, if they fund this buy printing money – doesn’t this effectively imply that they are shifting the burden of their recession from taxpayers to bond holders? If so, isn’t this equivalent to a partial default on debt.
I don’t think other countries would be allowed to do this.
What am I missing?
Update: CPW points out why I’m wrong – effectively I’m presuming that the Fed won’t stick to a future inflation target anymore, which is not really a fair assumption. He pointed me to this very good post as Econbrowser, and I also really enjoyed this post on Greg Mankiw’s blog. I’m nervous about the Fed’s willingness to pull back the QE/lift rates in the future – but this is no different to the usual concern I hold during the whole economic cycle. The introduction of QE hasn’t actually changed this issue.