[A primer on how the inflation tax works.] “Turning a profit for the Treasury Department is certainly not the Fed’s main goal, but it can’t hurt. So how exactly is the Fed making [the Treasury] money? First, here’s an important distinction: When the Fed buys bonds, it’s not spending the government’s cash. Rather it creates the money itself, basically by electronically crediting the money to banks. The Fed then earns interest on the Treasuries it holds, and while interest rates are very low, the sheer mass of bonds the Fed holds nevertheless makes for quite a windfall.”
http://economy.money.cnn.com/2012/09/01/how-fed-stimulus-earns-a-profit-for-taxpayers/
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