In his new budget plan, Paul Ryan says:

Today, we’re enjoying historically low interest rates because the Federal Reserve is buying large amounts of our debt, and investors have retreated to U.S. securities amid global turmoil. But our growing obligations may shake their confidence. In return, they might demand compensation for that higher risk. Foreigners own almost half of our publicly held debt. So we’re particularly vulnerable to a sudden shift in foreign-investor sentiment. In addition, over one-third of our total marketable debt will mature over the next 24 months. So we will have to roll over much of our debt in the next two years— when interest rates might be higher.

This is actually not the case that rates are so low because the Fed is buying or "monetizing" the debt.

In a recent speech, Bernanke revealed the real reason for ultra low rates.

The rate on the 10-year bond can be broken down into 3 factors.

One is expected inflation. One is the expectations of the path of short-term interest rates (which the fed does control). And the other factor is term premium, how much compensation investors demand to buy longer-term debt.

As this Bernanke chart makes clear. Inflation expectations are muted. There is expectation of the Fed keeping short rates low for a long time. And actually term premium is negative, reflecting desire to hold Treasuries as a hedge.

The actual Fed QE is not the story here.

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