[vishakad]

Zero interest rate policies definitely make it more difficult for central banks to use interest rates as a tool to stimulate aggregate demand.

Sure, the massive bond-buying program of the Fed did actively push interest rates close to zero. But, in the process, it decreased long-term interest rates too, in particular, treasuries and T-bills. This decrease allowed the government to borrow more money during auctions.

Isn't this a case for QE enhancing the government's ability to borrow? Or is my crude understanding of monetary policy all wrong?

[hga]

I'm pretty sure everyone's understanding of monetary policy is "crude".

What you say appears to be right, but it's also rare if not unheard of. As I understand it, normally, as the US (and I and my family) experienced in the '70s, these policies would be viewed by borrowers in such a way they'd demand more interest for lending their money to the government, through combinations of perhaps rising inflation and perceived regime risk (which rising inflation is an example of, by eventually liquidating debts for less real value).

"This Time It's Different!", which they always say (and is the title of a recommended book on the subject, an 800 or so year study of this game). The theory I hold to as of now is that the world-wide nature of the Great Recession and other factors like the artificiality of the Euro have made the US dollar, and US government debt, the "least worst" place to put your money. Well, in any quantity at least, e.g. I remember tiny Switzerland (GDP ~1/32nd of the US) getting very concerned about "hot money" inflows into their franc and maybe taking some actions WRT to them.

The PRC is also something of a wild card: they watched the debacle of Indonesia, where a short term liquidity crisis was treated by the IMO as a typical 3rd World unsustainable government debt crisis, resulting in needless hardship and the ousting of its long term strongman. The CCP decided to make sure that didn't happen to them and have as a result acquired vast foreign wealth/debt holdings, including plenty of US government debt.

[vishakad]

You've got some sound logic there, particularly on why the US is a popular place for investment. That is definitely a factor as to why T-bond yields have stayed low over the last few years. But, is inflation really that big a factor in determining bond yields during auctions?

With regards the '70s, you emphasized "normally" in your reply. Why was that? Weren't the '70s a time of unusually high inflation and unemployment in the US?

And thank you for the book recommendation! It looks really nifty!