[mothballed]

Good point; fed also creates buyers of treasury securities, including ones it holds, through inflationary policies that pressure dollar holders further in the direction of buying inflation tracking assets (which the government is happy to swoop in and offer the ~most stable one -- allowing them to satisfy the market they create.)

[gruez]

>through inflationary policies that pressure dollar holders further in the direction of buying inflation tracking assets.

Is this actually true? It might make sense at a surface level, but if you think a few steps further, you'd realize that that the price of "inflation tracking assets" (TIPS?) would eventually incorporate whatever inflation expectations that the market expects, thereby neutralizing any advantages it might have. Moreover there are deep markets for interest rate swaps/futures, so there's little need to pile into TIPS directly.

[mothballed]

High inflation pressures a near time preference in discharging USD.

Also "inflation tracking" I should have written more as "inflation hedging" -- needn't be TIPS exactly.

Higher inflation raises the cost of not buying treasury and other asset classes. You're right that there may not much change in the general preference in treasuries vs other non-USD asset classes, but it makes all inflation hedging boats rise.

This should be obvious if you simplify the market to just USD and say bonds -- at 0% inflation the opportunity cost of not buying bonds is just the real bonds rate, whereas at 10% inflation the opportunity cost is going to approximate closer to 10+real rate. In the latter the pressure to buy bonds would be much higher. ( Of course Fed can buy treasuries with essentially money created from thin air so the opportunity cost analogy may break down for securities first purchased by the fed, which could spoil the presumption that treasury sales proportion of inflation hedging assets might not change much)