I wonder what would be happening if they weren’t buying billions of dollars of government bonds that the public is obligated to repay? No effect on the economy?
Congress would still be borrowing that much. They'd just be borrowing it from China and paying higher interest rates.
However, we would be neck deep in a deflationary depression. The credit crisis in 2008 dramatically reduced the money supply. Had the FED not acted and offset that, we'd see the dollar rise in value, but we would also have seen dramatic business and banking failures.
The public is obligated to repay those bonds. But again, Congress was going to borrow them anyway. And I doubt higher interest rates would have deterred that crew one iota. Since the FED bought the treasuries, when the public repays those treasuries, the money flows back to the FED, and the profit goes back to the public.
Effectively, we've borrowed from ourselves. We don't do that normally, because it does increase the money supply. And the FED is charged with two tasks. Keeping unemployment low and the value of the dollar stable.
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