Credit vs Quantitative Easing

Recently, I've been following a blog called the Baseline Scenario. A recent post (http://digg.com/d1nwAy) discussed why Ben Bernanke's actions around monetary policy carry more weight when it comes to getting Europe on board with various economic stimulus measures. But what I found most interesting about this post was one of the comments from a reader toward the bottom:

Tim Duy says that we are making the mistake of confusing “credit easing” with “quantitative easing.” Duy points out (correctly) that Bernanke has repeatedly insisted that the Fed will mop up the excess money when necessary in order to dampen inflation; this means that the Fed is trying to keep inflation expectations where they are, despite the influx of money now. This could be Bernanke’s intention, but I think there’s still a question of whether the Fed will be able to follow through when necessary, and the resulting uncertainty could itself feed inflation expectations.

This is exactly right and until I read this, I hadn't thought about the distinction. The FED is currently engaging in a policy of massive credit easing. They are buying debt of various kinds (including Treasuries) with money they're printing from thin air. As long as the FED is repaid these debts at some timely point in the future, we won't see inflation (although, I wonder whether the below market rates the FED is charging for the debt wouldn't contribute to inflation despite its repayment). However, that's where we have a problem. Consider what the FED would have to do to to reign in this debt: it would need to collect on it or it would need to sell it. Selling treasuries in any quantity would depress the price of treasuries and increase the yield (reducing incentive for private investments and raising interest rates). Selling other kinds of debt would have the effect of depressing asset prices. If done over an extended period of time, it might be doable, but if it's too extended, you'll get inflation. The question is, can they reign in the money supply to dampen inflation without creating another round of recession and depressing asset prices? I guess we'll find out.