They simply use the newly printed money to buy back government debt. Whoever was holding the 30 bond for example, now has a handful of newly "created" cash. The thinking goes that he will then spend it on something -- consumer goods and services, etc. In the past however, much of the loose cash went into speculative financial activity such as betting in the stock market. That is one reason we got into trouble in the first place with the stock market bubble. Many people have argued that the reinflation will fail because you are trying to cure an economic illness with the very same measures that caused the illness to begin with.
Richard W.
In some present effect the printing and disbursement of "currency money" now in a deflatation acts as the fine (the piper to be paid) for all the lousy, tinkerbell,pie-eyed "investing" that has occurred in the past 10 years, once people forgot dividends and genuine hard profit and chased and put a grand premium on outright lies and vain promises.
What about the cash that was used by the holder to pay for the bond in the first place? And when the Fed buys that bond, it isn't retired. The government (really the taxpayer) still has to pay it off.
Right on---but I would have said it with less modesty:
Those who understand what's going on have correctly argued that the reinflation will fail because you are trying to cure an economic illness with the very same measures that caused the illness to begin with.