The Fed doesn't buy bonds from the Treasury.
The US government will owe the Fed a billion dollars plus the interest on the treasury bonds. This is a problem though, because the US government will owe more money to the Fed than the Fed actually printed, so it will be essentially impossible to ever pay off the National Debt in full.
Is that why you can never pay off your mortgage, the Fed didn't print enough money? LOL!
In short, the Fed is basically a legalized counterfeiting operation. They can create as much money as they like for free
If it's legal, it's not counterfeiting. And of course central banks can create money for free.
but they loan that money out to the US government and other banks on interest.
Yes, the Fed earns interest on their bonds and loans.
the taxpayers who will get the short end of the stick because they have to pay the Fed all of the money they created plus interest. Quite a racket, isn't it?
Yes, the taxpayer is on the hook for Treasury borrowing and government spending. Quite a racket, isn't it?
Now the US government could cut out the middleman and issue money to itself directly interest free
What do you feel that would do?
but I don't think that the big banks would be very found of that idea.
Why not?
Yeah, that's kind of a technical way of putting it. The Fed doesn't buy the bonds from the Treasury directly, but the Fed does buy the bonds from the treasury, albeit in an indirect way. Instead of buying the Treasuries directly, it has a bunch of its member banks buy the bonds on their behalf. Those member banks are still buying the bonds from the treasury effectively on behalf of the Federal reserve. The Fed then pays for the bonds buy issuing a line of credit for them. Regardless, all of those US Treasuries all end up on the Feds balance sheet anyway. So it is in effect, the Fed doing the buying, albeit in a roundabout way.
The Wall Street Journal, one hour ago.
“The Federal Open Market Committee, the Fed’s rate-setting group, decided to keep buying government and mortgage bonds at a monthly clip of $85 billion, defying market expectations of a reduction in asset purchases by $10 billion to $15 billion. The Fed cited risks to the recovery in the world’s largest economy from higher borrowing costs and lowered its growth forecasts for this year and the next.
The trillions of dollars spent by the Fed buying bonds since 2009 have not only calmed debt markets,,,”
No State shall […] coin Money; emit Bills of Credit; make any Thing but gold and silver Coin a Tender in Payment of Debts;) — and if the Constitution stipulates this, then the States paying the FedGov in anything other than Gold or Silver would be endorsing an illegal form of tender, no?