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Thank for you explaining it better. > When they participate, they effectively inject cash into the system, since the amount they can pay is unlimited and subje

Thank for you explaining it better. > When they participate, they effectively inject cash into the system, since the amount they can pay is unlimited and subject only to their mandate to get full employment and limited inflation In the case where they buy Treasury bonds, the government itself gets money that they can use as they see fit (I.e. stimulus checks), right? Whereas in this case they just "inject cash into the system" in general.

nostrademons 6y ago
But if the Fed hadn't bought the Treasury bonds, some other investor would've, just at a worse price. That's the thing about markets: participants are fungible, as is the money itself. There's a big difference in dynamics between one firm giving money to another in a non-competitive situation (say, a union bargaining with a monopsony corporation) vs. a market of buyers trading with a market of sellers (say, the commodity or stock markets). You get efficient price discovery in the latter situation, you don't in the former. And the concern up-thread about the sheer scale of Fed purchases is that when the Fed becomes the only market participant, it starts to look an awful lot like the former situation, and market mechanisms break down.