My, my, there certainly is a bit of Fed nonsense on this thread.
First, the Fed is a GOVERNMENT operation. Allow me to bore you with a few facts I posted 2 or 3 years ago --
---- start dry recitation of important Fed facts ----
The Federal Reserve System Board of Governors is a FEDERAL AGENCY created by federal law. All 7 members of the Board are nominated by the President and confirmed by the Senate for 14 year terms. The System BoG formulates monetary policy. The System BoG is where reserve requirements are set, where the discount rate is set, and where rules and regulations are adopted.
The 7 System BoG members are a PERMANENT MAJORITY of the 12 member Federal Open Market Committee, the other 5 members being the President of the NY Fed and 4 other regional Fed bank presidents each serving one year terms.
Regional Fed bank presidents are appointed (subject to approval by the System BoG) by each regional Fed bank's 9 member Board of Directors, 3 of whom are appointed by the System BoG (none of these 3 may be an officer, director, employee or shareholder of any bank,) and 6 of whom are elected by the member bank "shareholders" (3 of these 6 may not be an officer, director or employee of any bank.) One of the directors appointed by the System BoG is designated by the System BoG as Chairman of the Board and another as Deputy Chairman.
The 3 "bank" representatives on each 9 member regional Board are excluded from the process of appointing the regional Fed bank's president.
The Chairman of the System BoG is also the Chairman of the FOMC. The FOMC implements System BoG monetary policy. The FOMC is where fed funds target rates are set, where margin rates are set, and is responsible for open market operations to carry out policy.
The System BoG and the FOMC are where ALL of the actual power of the Fed resides. The 7 System BoG members nominated by the President are an absolute and permanent majority of both the BoG and the FOMC. They hold and exercise ALL of the power of the Fed.
---- end quick summary ----
Any and all ridiculous conspiracy theories about the Fed being somehow "private" notwithstanding. It ain't. Never has been.
And don't bother with regional Fed bank "shares," they're nothing more than the deposit needed to become a Fed bank member. If you owned any such "share" as a private individual, you would be horrified.
The Fed was designed to allow some private input (a good thing,) but that's it.
Would we be better off without the Fed? Without a doubt, but that ain't what we've got.
Second, there is no mystery about where the 4 trillion expansion of the Fed's balance sheet went. It financed the federal government's deficit. Period, end of story.
When the guys on the FOMC's trading desk buy $X billion of mortgage debt or US Treasury debt (creating money by crediting the sellers' accounts) what happens?
99.9+% of those sellers are institutions -- mutual funds, pension funds, hedge funds, banks, etc., etc. -- who just sold some bonds to the Fed. They now have cash to put to work. What are they gonna do? Buy other bonds. It's their (private-sector) job.
Not stocks. Not real estate. Bonds.
They might buy other mortgage bonds, they might buy corporate bonds, but mostly the money migrates to US Treasury bonds. Maybe not from the first seller, but from some subsequent seller.
Proof? The change in privately held US debt from 10-1-08 to 10-1-14 was 7 trillion -- from 5.8 trillion to 12.8 trillion. (Never mind the higher numbers frequently thrown around, those include 5 trillion of useless "trust fund" bookkeeping entries.)
So, independent of Fed "help," we (the US government, such as it is) actually managed to peddle 3+ trillion of debt to the public and world at large. The Fed bought the other 4 trillion or so, give or take.
Can we get away with this forever? No.
Has the Fed holding interest rates down created asset shifts among private investors? Without a doubt. But, these happen all the time and will continue.
Could the US have borrowed the whole 7 trillion without jacking interest rates up significantly, absent the Fed? Not likely.
Will the 12.8 trillion be slowly inflated away? Absolutely. We've already gotten rid of maybe one trillion of original value at the time of issuance with the ~2%/year inflation of the last 6 years. More to come.
Every year of 2% inflation destroys 250 billion of value. If inflation going forward is 3%, it only takes 3 years to destroy a trillion of current bondholder value. 20 years of that and 13 trillion is only worth about 5 trillion in today's dollars.
But, with an average maturity on the whole 12.8 trillion pile of about 5 years, there's a reasonably long fuse on it.
Moral of the story? Now is probably not the time to buy bonds. Any kind of bonds. If (not when) yields rise, the market value of the principal falls. (Quick, very round number example -- 3% current yield bond ---> 6%, current principal value of 100 ---> 50.) Ugh.
10 to 30 years is a long time to wait for principal to be paid off at par. Kind of like waiting for a delinquent customer to pay for his wife's beautiful new kitchen out of his estate.