fed purchases of treasuries are a book entry between two government departments.
treasuries with coupons and maturity dates are withdrawn from the market and exchanged for zero perpetual bank notes.
QE is simply an exercise in the government (via its agency the fed) swapping a prior borrowing decision and printing bank notes instead of borrowing from the market (foreigners) to finance its debt mountain and spending plans.
from this perspective QE can continue forever and the government bond market can be entirely replaced by bank notes that bear no interest cost. as such this saves the tax payer debt servicing costs. electronic bank notes become the only tool necessary to finance past accumulated and fund government spending.
QE HAS KILLED THE NEED FOR GOVERNMENT BOND MARKETS AND ONLY BACKWARD GOVERNMENTS PAY COUPONS OR REPAY DEBT.
THIS IS A NEW ECONOMIC TRUTH REVEALED BY QE. TAXPAYERS, VIA THEIR POLITICIANS, CAN ENJOY WELFARE BENEFITS AND SPEND WHAT THEY LIKE FOREVER AND PAY NOTHING FOR THAT CHOICE. (well according to the theory of QE anyway), upcoming systemic failure and hyperinflation will prove the lie of that.
right now though, a choice remains for investors to own treasuries that pay interest and mature at a time that suits them.
at 2.4 trillion china and japan in total own 0.5 trillion more treasuries than the fed. (china 1.3 trillion and japan 1.1 trillion) v the fed at 1.9 trillion. between the fed, china and japan, around 25% of gdp or 1 and a half years of government spending has been financed.
http://www.treasury.gov/resource-center/data-chart-center/tic/Documents/mfh.txt
http://www.newyorkfed.org/markets/soma/sysopen_accholdings.html
these two countries have used treasuries because either their economies cannot use the cash (China) or because they are "manipulating markets" like the Fed (Japan).
note that of the total foreign owned of 5.7 trillion, there is 4 trillion that is "official" owned. fed plus foreign = 7.6 trillion or just under half of all treasuries. no other muppet would want to own bonds paying a negative real return in an economy that is stagnant and whose currency is likely to fall substantially because it offers no economic rent/return(in other words..the case for gold).
china and japan have loaned goods and services to the US in exchange for treasuries. these are long term government loans. without these loans the US would not be able to funciton as a government. thanks go to china and japan.
should china and japan determine that the US interest rate is not sufficient to compensate for exchange rate risk of a falling dollar because of stagflation, the US government will need the Fed to buy/print their holdings. japan is a manipulator and can simply print more money (yen) to bail out the US fiscal position and strengthen the dollar. China needs the money to spend on wages (leading to domestic consumption). why would it own dollars that in a close to zero growth economy with circa 2% inflation, when its own economy is growing 7% and its citizens are paid less than one third of US citizens for the same quality of goods?
china is the key at the moment, to be replaced by the debt monetization policies of the government via the Fed as China needs to sell down ints holdings.
the next shoe to drop is that the us dollar craps out and the next trillion of foreign investors (opec, brazil, caribbean, uk and switzerland) find better uses at home to pay their own deteriorating fiscal positions and debt piles.