Asianautica, how do you think the Fed control’s rates? What is the extent of their balance sheet used to control their target rate? Treasuries! Now tell me why rates have been so low for the last 8 years. Other countries buy our gov’t debt and drive down rates in the process. Now tell me what happens when the foreign debt buyers see that the paper being tendered at the Fed for said Treasuries includes bad mortgages, credit card debt and even auto loans (all non AAA paper). You’ll see foreign buyers running for the door. Here’s a nice image of when this happened last when the Fed did not stop the nonsense and poor lending practices.
[img_assist|nid=7574|title=Long bond chart during the Depression|desc=|link=node|align=left|width=466|height=411]
Now look at how much of its balance sheet the Fed has committed to this so far.
The closer that gets to bottom the closer we are to a bond market dislocation. Then low rates are a thing of the past and the Fed can’t do anything to stop it.
