Actually there is nothing unusual here with regard to the Fed buying bonds, but of course the amount of the purchases have been large. But that should be expected considering the depth of the recession. Buying Treasuries is the usual method the Fed uses to pump money into the economy via the Treasury. The U.S. is coming off the worst recession since the Great Depression, so naturally the Fed Bond purchases have been especially large. Perhaps there would have been another depression had the Fed not done this.
As to foreign purchasing of Treasuries dropping, that is somewhat true, but there are still lots of Treasuries being sold to entities other then the Fed. Consider what happens when the government leverages up to compensate for leveraging down in the private sector. Under these conditions Congress, via the Treasury, will spend more; thus, against a backdrop of fiscal profligacy, declining revenues and heavy deficits, during a very severe recession borrowing greatly increases.
I'm not saying that China and Japan did not reduce their bond purchases, nor am I getting into whether the Fed's action is good or bad. I'm just pointing out that the Fed is following standard practice here. Nothing unusual considering the severity of the recession.
It seems Crenshaw and Jones are trying to make a case for the Fed's heavy buying being due to loss of interest from Japan and China. But I think it is a weak case under circumstances where the Fed would be buying heavily anyway. Certainly, if the Congress does not bring its discretionary spending into line with revenues once the recession is past, and it's going to be a long one, the U.S. will ultimately find itself in "deep doo doo," to borrow a phrase from a famous American.
