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Politics : Ask Michael Burke -- Ignore unavailable to you. Want to Upgrade?

To: sammaster who wrote (74329)	1/24/2000 9:00:00 AM
From: Freedom Fighter	Respond to of 132070

Samir, This is the way I understand it. The Fed buys the bonds using essentially just an accounting entry. That's why you will hear some people saying money comes "out of thin air". I believe the interest on those bonds over and above the cost of running the Fed goes to the Treasury. So I believe you could say that they are both adding money and easing the burden of Federal borrowing because some of the interest (I don't know how much) goes right back to the borrower. Maybe someone else can elaborate on that. If you go to the Federal Reserve web page there is an explanation of its functions and rules. I will say that the better you understand the relationship between the banking system, the Federal Reserve, and the government the more you appreciate that in addition to its well known functions it is essentially a wealth transfer mechanism. It is easier to transfer wealth from people when they don't know it's happening. It's tough when you tell them you are raising their taxes. It's a shame the rest of us can't get the deal that global financial institutions have these days between the Fed, IMF, equity for debt swaps and all the rest. Wayne