Please refer to the following link : Fed mulls issuing own debt. I am trying to understand why the fed is doing this.
As far as I understand the fed can buy any asset in the economy by just writing a check on itself. The liability in this case is that the fed has to extend credit or print notes to fulfill the obligation when the check comes for redemption through a commercial bank. The check on the fed is redeemed either in currency notes or in the form of credit in the reserve account of the commercial bank.
I am anything but an expert here, I just ran across an article that may answer your question this morning. I’m not promising anything because I didn’t read the whole thing myself (not that interested) but I hope it helps.
Probably because they have enough intelligence to know that will cause huge hyperinflation…they do a little bit of everything. If people (mostly foreign countries) saw that we were blatantly printing our own money, they would loose confidence in our currency because it would result in huge inflation and a decrease in their invesments (our bonds, dollars, etc). Printing our debt sounds postpones the situation for a little bit, but soon the countries will realize the effects and pull out of our country.
I would agree with the others, while the Bureacrats may have a high time preference in regards to exploiting their powers while it lasts, they don’t have an infinite time preference - they give some thought to tommorow and their place in it. This is why unions will roll-back wage and regulations, they prefer to be employed.
Bureacrats in a democratic societies have an incintive to exploit their positions while they last, but the interest groups that mainly control the Fed not only have some long-term extra-office interest (banks, Fed officers etc) but also some sense of the repercussions of unlimited inflation. The problem with this equilibrium is the constant pressure to increase inflation/expropriation among all state officials as well as the possibility of a coupe.