The fear was always would the market still buy our debt. The answer is no. The Fed is buying 70% of the debt. Can the Fed buy forever? If the Fed never cashes in the Bonds can this go on forever? Cant the Fed just roll this debt over and over into infinity. How would it hurt the Fed to do this. At some point in future history the Fed just writes off the debt paper and says it doesn't want payment. What is there to lose?
I think the difference is that when China or anyone else purchases a treasury they are using money that is already in circulation so that purchase provides the treasury with existing currency and pulls it out of circulation eleswhere in the purchasers account. When the Fed purchases treasuries it creates new money which goes to the treasury and eventually into circulation. Whether the Fed rolls the treasuries at maturity or just retires them without payment, the new currency has already gone into the money supply and will devalue the dollar and cause inflation. The only thing preventing the inflation now is the weak economy and the implication that the Fed intends to sell the treasuries back to the market and recover and retire the new currency it printed instead of the treasuries.
Milton Friedman believed giving governments any flexibility in setting money growth would lead to inflation and therefore, the central bank should follow a procyclical monetary policy and expand the money supply at a constant rate, equivalent to the rate of growth of real GDP. At one time Steve Forbes thought the growth of money supply should be tied to Gold and the basis should be $400. If Gold is above $400 take money out and if it lower the $400 pump money in.