“The Treasury will instruct the Fed to create a long-term bond obligating the US Treasury to the Fed...”
Nonsense. Congress sets the debt limit and instructs the Treasury to sell bonds to raise the money it authorizes. The Fed isn’t involved in that process, and the Fed can’t “obligate” anyone.
The Fed certainly cannot create a Treasury bond without authorization of the US Treasury and the Treasury is certainly subject to a debt ceiling set by Congress. However, with a few minor excpetions like savings bonds, the US Treasury no longer prints bonds, notes, or bills. Rather, they are issued in book-entry form at Federal Reserve Banks. The Fed manages the book-entry program; so they are indeed very actively involved in the process. The Fed also conducts the auctions of Treasury securities, manages the TreasuryDirect service, and the Fedwire transfer system for Treasury securities. These are important roles of the Federal Reserve System, particularly the New York Fed.
See http://www.ny.frb.org/aboutthefed/fedpoint/fed05.html.
It’s quite possible for the Fed to create a book-entry for a long-term bond if instructed by the US Treasury and then credit the Treasury’s current account.
Historically the Fed has conducted open market operations involving vast amounts of short-term Treasury bills. That’s what monetary policy was all about from 1913-2008. Since then, the Fed has stuffed its balance sheet with all sorts of assets.
Sure, they will probably purchase long-term Treasury bonds through open market transactions. The effect is almost the same as just creating the bond directly. However, with open market transactions, the Treasury and the Fed cover up the fact that they are monetizing the national deficit and Goldman Sachs et al get a few basis points for their services.