When there are no buyers of US govt debt except the Fed watch what will happen to interest rates then...
i'm no expert in finance..i'm dropout from some russian middle school..please forgive me,if i'm wrong....but even i do know the consequences of weak currency: http://www.newyorkfed.org/aboutthefed/fedpoint/fed38.html
When no one wants to buy US Govt debt except the Fed, the world at large would have already been reduced to sporadic settlements of survivalists bartering salted fish, lighter fluids, and women. Not sure we need to worry about interest rate.
US Dollar is the reserve currency (and until such time that another currency actually credibly supplements the dollar rather than vague suggestions like the euro, gold, or special-drawing-rights) and thus faces slightly different set of monetary policy rules. Further, if weaker dollar stokes domestic consumption and results in inflation, the Fed will raise rates - but that's EXACTLY WHAT THEY ARE LOOKING FOR - growth, inflation, and then control excesses with the standard tools.
If they raise interest rates and stop QE the US government will automatically default as interest payments will be above 50% of budget spending very soon even without raising rates end of QE will result in bonds collapse. The world can't absorb 1.7 trillion, interest rates will be 10%+ in no time the only way to avoid the default is austerity and budget surplus right now Current deficit is 1.7 trillion. Slashing spending by this amount will trigger depression in case of default dollar will lose reserve status and hyperinflation will happen if Fed continues to print hyperinflation will happen they are cornered - no stadard tools will work here
I'm not sure you grasp how the treasury bond market and issuance work. It simply doesn't work the way you think it does; First off, US treasury bonds are fixed coupon bonds. If the Fed jacks interest rate to 10% tomorrow, it won't change the interest payment of the debt that has already been issued. It's not like all outstanding us treasury bonds are immediately redeemable if the Fed hikes tomorrow. US treasury bonds are not callable. Second, 1.7 trillion may seem like a big number, but it really isn't. Each treasury note auction is around 30billion in size and it happens pretty often. A *bad* auction is one where the auctioned yield is a few basis points (that's right, basis points) above where the market expected. And this is at historically low yields. Rates go up, there's all sorts of demands - both domestic and international, for US treasury notes. Look, the US is a little unhinged about how it's spending its money. No argument from me. But the bond market simply doesn't work the way you think it does. The US might 'default' (if ever) when the dollar is no longer a relevant reserve currency for whatever reason; But a default won't be the cause of it losing that status because it simply can't if that's the case.
it works exactly as I think most of debt short term 2 years or less in addition to new 1.7 trillion US needs to roll 5 trillion of old debt now short term debt is below 0.1-0.5% which is basically free now let's pretend Fed raises rates to 3% so expenses go up 150 billion in the first year and 500 billion in 3 years if rates go up 5% it will be 750 billions every year in 3 years if current deficit is not reduced dramatically interest will be north of 1 trillion in 5 years which will make deficit 2.5 trillion or 16% of GDP there is no way out - print a trillion every year or default first result in hyperinflation the second one depression
If the Fed's objective is to prop up the equity market, I believe it has been pretty succesful in the last year. Maybe, they don't care (see above). For comparison, in the UK investing in residential property is considered an essetial part of retirement planning. For the last 20 years the growth of property prices on annualised basis was close to 50% of GDP. All well-off people (including ministers) are heavily invested in residential property. So, both the previous Labour government and the current coalition one go out of their way not to allow property prices to fall dramatically.