No, the government buying its own debt is a very famous accounting trick designed to create more money in the economy. This act is the basis of the fractional reserve system, which in turn is the basis of all modern money.
The Federal Reserve bank buys bonds from bondholders (either newly issued bonds from the government or bonds from my safe deposit box). And in return it puts money in a bank account. Where does the money come from? It is just numbers in a database. The Fed just edits the database. Only the central government, which controls the currency, has the power to create money out of thin air in this way, but that power is very important.
(In other times, when the economy is really hot and inflation is soaring and we need to cool down, the Fed does the opposite: It raises interest rates, which causes people to want to buy bonds to get more interest, which causes people to spend their cash for those bonds. And, as each bond is bought, the Fed just erases the cash from bank accounts. The money vanishes! Remember, money is just a score in a game, the game of "keeping the economy working so that people can eat". It's not made of metal or anything. That was the old way, the way that didn't work.)
You can't get the same effect by selling bonds to England, because then England will pay for the bonds in dollars, and England can't create dollars. They have to buy dollars with pounds. So the total supply of dollars in the world would remain constant, which is not the point of this exercise.
(Now if I really understood econ we could go on to talk about why this little exercise might not work this time, about the "liquidity trap" and the "zero lower bound". But my time is up.)
This could also reflect a lack of faith in other governments rather than faith in the US government. If assorted European debt became 10x more risky but US debt only became 5x more risky, that would cause a flight into US debt.
Interest rates reflect relative opportunities, not absolute value.
The fact that the US is seen as a better investment than, say, China, does not tell you that the US is a good investment.
> "zero lower bound".
0 is not a lower bound for interest rates. You can loan someone $100 today in return for $90 in ten years.
If you're trying to get folks to do something with the money that they borrowed, there are other levers. Or, you could just loan it to different people.
By the way, this is not just my opinion. Conservative economist Tyler Cowen (who teaches at GMU) also thinks that a little inflation would be helpful: http://www.nytimes.com/2009/08/02/business/economy/02view.ht...
If the money is coming from mortgage investments, I don't believe this action is actually increasing the money supply. Knowing the complexities of the Fed, though, I could certainly be wrong.
On a side note, man, there's alot of sheeples on this board. Do you all like get up early in the morning to go to work and get robbed?
