* The Fed buys treasury notes and bonds from third parties, because it cannot buy them directly from the US Treasury at issuance.
* The Fed can earn and book profits from treasury securities only to the extent the US Treasury continues to make interest payments and repay principal.
* The US Treasury can pay continue to pay interest and repay principal only with money that is (a) borrowed from third parties by issuing new treasury securities, or (b) collected via taxation.
Things are this way by design, for many reasons, including the explicit goal of limiting short-term political influence over monetary policy.
I don’t see those details changing the essentials.
* An investor acting as middleman between the Treasury selling a bond and the Fed buying it hardly matters. The Fed is supporting the price and ends up with the bond.
* Whether or not an interest payment is made to the Fed, this is money that the government has in the end. The point is that nobody outside the government gets any payments, so the debt is effectively neutralized.
I’m not sure the third point is true. Revenue from the Fed’s operations aren’t restricted funds, are they? It may add a lag, though.
It’s true that this maintains the independence of the Fed, but currently the Fed is openly advocating that Congress should spend more. They can cooperate to create and spend money when they agree that it’s a good thing.
They might not say explicitly say that this is what they’re doing, though.
* The Fed buys treasury notes and bonds from third parties, because it cannot buy them directly from the US Treasury at issuance.
* The Fed can earn and book profits from treasury securities only to the extent the US Treasury continues to make interest payments and repay principal.
* The US Treasury can pay continue to pay interest and repay principal only with money that is (a) borrowed from third parties by issuing new treasury securities, or (b) collected via taxation.
Things are this way by design, for many reasons, including the explicit goal of limiting short-term political influence over monetary policy.