The balance sheet can be unwound simply by waiting for the bonds to expire, then the money goes poof out of existence the same way it poofed into existence.
What the fed has been doing though, is rolling the money into new bonds, keeping the total balance ~constant. If they didn't, it would leave a $4T hole in the bond market that would suddenly need to be filled.
How would that work? The money's been created and has been put into the economy. Balances on bank accounts have increased. You can't just take it back just like that.
If the bond is not paid back and the debtor defaults, well... this can't happen with US Treasuries because the fed is an arm of the government and will always roll over a bond. But if it happens with the corporate bonds that the Fed is buying, then the US Treasury is on the hook for the losses because by law the Fed cannot be impaired.
When it matures, the fed holds everything. There isn't anything to "take back"; they have it all already.
Also, why does the government debt "bubble" ever have to "pop"? Does everyone still believe the government has to "pay off the debt"?
They don't. Ever. For a large number of reasons, to name just a couple:
- No more treasuries or bonds (how many people would freak out if those no longer exist)
- They can print more money forever. Besides, at this point it's just numbers in the FED computer system. Hardly any of it even exists as a physical object (paper, coins).
Also, I'll let you in on little secret. The Fed is never going to fully unwind its balance sheet.