Hi, I’m new to this board, and was hoping someone here might be able to help with a concept about the Fed that I’m still trying to understand. I know the Fed can’t directly purchase securities from the Treasury, so it uses primary dealers as an intermediary. Now my question is, where does the Treasury get the money to pay the public for the securities once they mature? Does the Fed just create money and give it to the Treasury to pay back the public, or does the Treasury receive revenue from government funded services? Additionally, what happens to the matured securities held by the Fed? Are they just terminated, or does the Treasury actually have to pay the Fed? Thanks for any help, and if this is poorly worded, let me know and I can try to clarify. Thanks
Taxes or more borrowing.
according to this article by professor Dilorenzo the Fed uses the interest payments from the government securities it holds to fund its operations. http://www.fee.org/publications/the-freeman/article.asp?aid=3598
Thank you. I appreciate it. I’ll give that article a read.
edit: after reading the article, I was able to improve my google search, and there are several sources (including the Fed’s official site) that agree with Professor Dilorenzo. Thanks again.