What If the Fed Crushes the Long Term Yield Curve to 0-1% ?

“Matt Yglesias has a good piece on Slate about the Fed and inflation.  He asks if the Fed is really powerless to create inflation and mentions a point I have been saying since QE2 was implemented:

“The Fed could, on that view, simply buy all the outstanding debt in the country and then tear it all up. Wouldn’t that be a bonanza? “

So how could this work?  First, the reason why QE has been failing to a large degree is because monetary policy is about setting prices.  When the Fed sets the Fed Funds Rate target they name a price and essentially challenge the market to compete with them over that price.  The Fed could do the exact same thing at the long end of the curve.  They could come out and challenge the market to try to move the 30 year bond above 1% for instance. ”

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