There would be no inherent problem with having the Fed hold this much debt, if the tax system then soaked up distortions in how the resulting stimulus was distributed into the economy. That is, if the tax system is structured to pull back currency from unproductive sinks before it yields inflation, then there's no problem with the Fed holding that debt.
A better structure, as others have pointed out, would be to have the Fed just hold the government's debt, so that allocation and taxation can both be managed by the government. At the moment, the Fed and Treasury (via Congress) are both competing to play an allocating role in the economy at the same time, with no real coordination or plan.
OR...you could let nature run its curse and have those debts refinanced at real interest rates that reflected the actual production in the economy, or defaulted and have those assets and resources liberated, thus correcting the distortions which were product of the FED and the government in the first place.
Well, it all depends on what you think the purpose of an economic system is. Perhaps you'd just let the mortgage market blow up, if your only concern on this Earth was to know exactly what the market price of an asset was. But you'll have to explain to me how you think the distortions are the product of Federal Reserve and government policy, since I am not following whatever you're alluding to. The distortions I see are inherent and inevitable products of the economic system we currently have, not the product of any specific policy. In fact, these distortions seem to be the product of an absence of an adequate policy to alleviate them.
You're so right. It is clear that monetary policy isn't enough. We need Congress to step in with a real plan for fiscal policy adjustments. The Fed can just do whatever they want so they do. Congress fights to get anything moving. The issue is that this asset bubble continues to grow and near zero interest rates isn't doing anything but inflating asset prices. We need fiscal policy to start growing the GDP and we need it yesterday.
A better structure, as others have pointed out, would be to have the Fed just hold the government's debt, so that allocation and taxation can both be managed by the government. At the moment, the Fed and Treasury (via Congress) are both competing to play an allocating role in the economy at the same time, with no real coordination or plan.