That is exactly the situation that leads to hyperinflation. Yes, the Fed can create as much money as they need to buy bonds to keep interest rates low, but this outright monetization causes bond buyers to realize that their money is rapidly getting worth less and less. Then there is no one to left that will buy the bonds except for the Fed. Once this happens interest rates become meaningless to savers even if they are zero because no one is buying. If no one is buying, it means the money goes somewhere else besides bonds. All that is left is hard assets and the stock market. Considering the bond market is considerably bigger than all other markets, when money flees bonds and goes elsewhere, prices of the things other than bonds rise rapidly. As prices rise, people see their money is loosing purchasing power so they immediately try to spend it for something that will hold value as soon as they get paid. Velocity increases to almost infinity. Wal-ahhh. Hyperinflation. All dollars, try to buy "something" other than bonds.

Once confidence that the dollar will hold its value is lost, the bond market will be toast. The Fed will be the only buyer. Once money flees bonds, game over. Prices rise, velocity increases, inflation rages.

The way Volker stopped it in the 80's was raise the interest rate well above the rate of inflation. When this happens businesses can't borrow and recession/depression ensues as deleveraging takes place.

The Fed is between a rock and a hard spot. They can't raise interest or our government as well as some of the private sector can't pay their bills because the interest becomes more than tax revenues will support. Default. If they do raise rates to encourage saving (so people are induced to buy bonds), they create a recession or worse. Catch 22. We have been in it every since rates went to zero. Maybe even some time before.

So yes, the Fed can keep bond rates at zero buy buying all of them. But that is a sure fire way to hyperinflation. So zero rates become meaningless as no one will buy the bonds anyway.

When all money is created as a debt instrument, with interest attached, there is never enough money in the system to satisfy both paying off the debt and interest combined. A Ponzi scheme. It has to end badly. The question becomes how long will it take to do so, when, not if.

If the government created money directly, that would not be the case, Only when money is loaned into existence to our government by a central bank as a debt to be repaid, with interest. When the Fed buys our governments Treasury bonds or bills, they are loaning we the taxpayers money, with interest due, that they create from nothing. Sweet deal. Someone will point out that excess interest earned is turned back in to the Treasury so the Fed makes out like they are the good guys. Putting money in the Treasury from their income from the interest they charge us from loaning us money they created from nothing...........Does anyone see the problem with this system? If you do, you are in a tiny minority. Meanwhile the Federal Reserve System pulls some pretty hefty salaries and "costs" before they return their excess income back to us. Sweet deal if you are a Federal Reserve member bank that owns the Fed (the banks own shares).

Watch the bond market. When the fed is the only buyer left (or foreicn governments we swap money with so we can buy their debt while they buy ours - you scratch our backs, we scratch yours - You lie to your public while we lie to ours - you get the idea). When confidence is lost, money will pour out of bonds into everything ........ anything, else. The waterfall event takes place. Hyperinflation.

This is not going to end well.

John