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Above doesn't sound right to me. Right now the Fed is not buying any treasury securities. All new supply in treasury auctions must be bought by other buyers.

The Fed can't buy treasurys directly from the Treasury (although in eventual effect it
can via a roundabout mechanism). However, purchases of treasurys must be settled in reserves. When a
primary dealer (or even you) buy a treasury, the corresponding amount of reserves are removed from
the primary dealer's (or your bank's) account at the Fed.

The confusion seems to come because people tend to think that a treasury purchase settles in bank
deposits (it actually did, but the bank here is the Federal Reserve).

The simplest way to clarify is to think in terms of balance sheets (your banks/the whole private
banking system's). When you buy a Treasury, say, for $1000. On your bank's balance sheet
a *liability* of $1000 disappears. Now something has to change on the asset side (otherwise you
just increased your bank's net worth for doing nothing). The change is that on the asset side $1000
of reserves disappears.

That is, for the banking system as a whole, Treasury issuance results in draining of reserves (I am
ignoring accounts that the Treasury maintains at private banks, again for fine tuning reserve
management, in order to avoid unnecessary technicalities).

When the government engages in deficit spending, all other things being equal, this results in the
bank system getting more reserves - Treasury spending leads to a simultaneous credit to the bank
deposit account of the recipient and to that bank's reserve account at the central bank.

I don't think both can be done at the same time.

See above.

Is this what you meant by "reserve and money supply management" operations?

Exactly what I meant is that:

- federal deficits mean net credits to banking system reserves and also to non-government deposits
at banks;

- the Treasury works hand in glove with the Fed, providing new bond issues to drain excess reserves
(where excess is determined by the amounts in excess of the needs and desires of private banks that
start pressuring the Fed's overnight interest rate target);

- for this reason, bond sales are not a borrowing operation used by the Treasury, instead they are a
"reserve maintenance" tool;

I would like to address some of your other comments too, however I would like to wait and see if the
above makes any sense to you (there is no point in addressing some of the other stuff, especially
regarding government "debt", since if the above doesn't make sense what I am going to say there will
sound even more like the ravings of a madman).
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