The Biggest Myth About The Federal Reserve

Anti-debt politicians are always talking about how the Fed is somehow enabling fiscal recklessness via ultra low rates and bond purchases.
And in his latest US Macro Dashboard note, Morgan Stanley's Vincent Reinhart discussed this idea as part of a broader point about why large public sector debts are associated with lower economic growth (a thesis that his economist wife Carmen Reinhart has become quite famous for).
Reinhart writes:

High levels of public debt relative to the scale of an economy are costly.  That is a message from work done recently with my wife Carmen and Ken Rogoff, both of Harvard University.¹ One reason we think so is that governments resort to forms of financial repression to lower their borrowing costs.  Limiting investor choice, forcing financial intermediaries to hold more government debt, and keeping policy interest rates low makes the fiscal burden of the debt more sustainable.  But there is a cost, as this crowds out private borrowers and slows economic growth.

The problem is: This really doesn't make much sense.
First of all, private borrowers are FAR from being crowded out these days. Yesterday, Unilever and Texas Instruments just borrowed money at the cheapest rate in corporate history. If anything, QE "works" because it forces money out of government securities and into private sector securities, like corporate bonds or home mortgages.
But beyond that, it just isn't the case that the Fed, when deciding what policies to take, is looking much at US government debt.

Read more: http://www.businessinsider.com/the-myth-that-the-fed-buys-treasuries-to-reduce-government-borrowing-2012-7#ixzz22Bv8GZg3