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Nah, it ain’t pretty and it is a technicality. But the Fed can just the money it needs. Cash is deducted from paychecks and sent to the Governmet.

The excess receipts are required by law to purchase/invest these non-negotiable Treasury Securities. Reflected on the Federal Reserve Books in a “due to” account. Due to the USA Government as opposed to some other Government, other entity or individual.

The Treasury Dept. lets the Fed know that it is cashing in some of these securities. Just like some student’s parent may decide to cash in Government Bonds for the tuition.

When bonds are cashed that particular bond is no longer a liability owed, and is a subtraction to the Debt. There is always enough money for these transactions, because the Bernake can print money till the cows come home.

Consider for example if you had a couple of credit cards. You make a payment on the first card and no additional charges; your debt on that card goes down. If you make a payment on the second card, but charge more on the second card, the second card may or may not be reduced depending on the size of the charges. Hence your overall debt might go up even though the balance on the first card went down.

Now if you happen to approach you debt limit, sometimes the card company raises the limit and you go merrily on your way free to charge even more should you be deperate or imprudent.

Eventually, your payments exceed your ability to pay, at which point, maybe you get a raise or maybe you don’t. Maybe you file for bankruptcy.

But Uncle Ben could just say no problemo, hit the printing press and you’d have all the money you need. It will be even uglier when that printing party comes to an end.

Not a perfect example, but perhaps it illustrates the point?