No, I don't believe the Fed ever has to pay the money back. My understanding is that the Fed has been given the power by Congress to print money out of thin air at their own discretion with a dual mandate to "control inflation" and "maximize employment." This is how the system works.
Let's say that the US government wants a billion dollars of cash to spend and no private investors want to buy Treasury bonds. How does the US government get the cash they want if their are no private investors who want to buy? Well, the government won't want to raise taxes because that is politically unpopular. So where does the money come from?
Well, of course! The Government goes to the Federal Reserve Bank and asks for a LOAN of a billion dollars. The Fed does not actually have a billion dollars to give the government, but that's not a problem. The Fed will create the money out of thin air, by creating a bank account and electronically saying that it has a billion dollars in it. And just like that *poof*, the government has a billion dollars to spend. Because the computer says that the government now has a billion dollars in their account.
In exchange for this newly created billion dollars of cash, the US Treasury Department will usually give the Fed a billion dollars of US Treasury bonds. Since these treasury bonds are on interest. 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.
In short, the Fed is basically a legalized counterfeiting operation. They can create as much money as they like for free, but they loan that money out to the US government and other banks on interest.
The Fed doesn't have to pay anyone back. It's not the Fed borrowing from the Treasury. It's the Treasury borrowing from the Fed. Thus it's the government who has to pay the Fed back. Unfortunately, this means that ultimately, 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?
Now the US government could cut out the middleman and issue money to itself directly interest free like it used to do, but I don't think that the big banks would be very found of that idea.
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?
I disagree with your assessment on the point that congress has control of the fed. Perhaps that is what they say but I think reality is different.
So money is printed out of thin air and WE THE PEOPLE have to pay it back? But if I print money, is that ok? Hey, I’ll pay it back, I promise, just let me print it up tomorrow.????????