Could Someone Please Explain the Money Supply?

[Taciturn]

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I've been trying to get a better understanding of this myself.

What are the specifics of the transfer of money from the FED to the US gov't? Is this what open market operations are? As I understand it, the FED gives the US gov't currency in exchange for some kind of gov't security like a bond... is this correct? am I way off?

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the Fed doesnt "transfer money" to the government. The government either gets its money from taxation or by selling Treasury bonds/bills/notes etc (just call them bonds).

The Fed controls money supply by buying Treasury bonds with newly created money (increasing the money supply) or selling bonds it already owns (decreasing the money supply because the cash used to buy them reduces the buyers cash reserves and the fed holds the cash back).

Shorter term money supply changes are controlled by repurchase agreements, which are overnight or longer term (up to 2 months or so) loans that use Treasury issues as collateral.

Those deals are with banks (or other "primary dealers"), though, not directly with the Government.

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Ok. So, when the Fed increases the money supply by buying Treasury bonds with newly created money, what has it given as consideration for those bonds? anything?

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Im not sure what your question is. The consideration is the newly created money, which has the full backing of the US and the same value as any other dollars.

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Maybe my question is basic or dumb: since the Fed creates money, what, if anything, do they give up for the Treasury bonds? From your answer, and other things, it seems as if they give up nothing - I just wanted to make sure.

Assuming they give up nothing, do they get the full benefits of the bond? err... do they get the same benefits (repayment of interest, princ. etc) that a normal purchaser would get from the bond? I'm assuming they do... just clarifying. Can and do they then sell the bonds to third parties?