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What will be the macro-economic effect(s) of absorbing government bonds by increasing money supply ?

Posted by Paul van Dam on October 18, 2010 at 10:36 in Opinions
It has become a real practice of the Fed and ECB (to support PIIGS countries) to buy up outstanding government debt by excessive money supply.
Government debt is created while buyers believe that the future economic potential suffices for paying back the current debt volume.
Increasing the money supply (is intended to) accelerates inflation in order to buy government debt and reduces the volume of capital to be repayed.

Does this imply the central bank/government devaluates the future economic capabilities of the country and/or the buying power of the involved currency ?

What will be the impact on treasuries, pension funds and economic relationships?

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