In QE, the Treasury issued long-term bonds. The Fed bought up the long bonds, issued overnight debt, and passed the interest difference back to the Treasury. In the end, it is just as if the Treasury issued overnight debt in the first place.
Simplifying a bit, the Treasury should introduce a fixed-coupon perpetuity and a fixed-value floating-rate perpetuity. These should gradually make up the bulk of government debt.
The tradeoff between cost of borrowing and how much interest rate risk taxpayers shoulder should be squarely on the shoulders of the politically-accountable Treasury not the independent Fed.
Early in the final stage of the Big Debt Cycle, the market action reflects this dynamic via interest rates rising led by long-term rates, the currency declining especially relative to gold, and the central government’s treasury department shortening the maturities of its debt offerings because of a shortage of the demand for long-term debt.
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