Posted on 08/04/2011 6:55:32 AM PDT by Halfmanhalfamazing
“The Fed doesn’t borrow money — it prints it. Then, the government borrows that and pays interest to the Fed for its trouble. It’s easy once you get the hang of it.”
No, the government doesn’t “pay interest to the Fed”. The government pays interest to those who loan it money, which means all purchasers of Treasury securities. That means China, Britain, Japan, corporations, life insurers, banks. Anyone who buys Treasury paper. If you own savings bonds, T-bills, or any other Treasury debt that includes you.
The Fed has large holdings of Treasury paper, so to that extent the government pays the Fed. However unlike every other holder of Treasury securities, the Fed doesn’t get to keep the money it earns on its Treasury debt. By law it has to return all income above its operational costs to the Treasury.
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