Answer to Question #142358 in Economics for Isaac Kim

Question

heard all the profit that the fed makes goes into treasury.. does that mean the treasury department make unlimited money? like if they issue bond to people, and the fed purchases them through OMO, then all the treasury bonds that the fed bought would be given to treasury right?

When someone buys a Treasury bond, the government must pay them interest. This applies to the Fed as well, but then at year-end the Fed remits the interest back to the Treasury. The federal government paid out $223 billion in interest payments last year

This is the article I was reading about

Answer 1

The modern Federal Reserve no longer simply runs new paper bills off of a machine. Some real dollar printing does still occur (with the help of the U.S. Department of the Treasury), but the vast majority of the American money supply is digitally debited and credited to major banks. The real money creation takes place after the banks loan out those new balances to the broader economy.