The Federal Reserve is an incredibly complicated pseudo-business/pseudo-governmental entity. Whenever you have a complicated entity that very few people can understand, you have simplistic views of the entity that dominate. Many Republicans and Libertarians will have you believe that the Federal Reserve is the epitome of all that is evil about the Federal Government. They would like governmental economics to behave exactly like familial economics does. They would like money to be backed by something tangible like gold. This is magical thinking. Gold backed securities may work fine in normal economic conditions, but they also hamstring efforts to fix economic issues in non-normal economic conditions. And we are almost always in non-normal economic conditions.
Take, for instance, the tripling of the monetary base that has occurred in the last decade. Under normal economic conditions, this would prove disastrous to the economy. Under current economic conditions, when we are in a liquidity trap, inflation barely rears its head at all. Another benefit to the printing of all that money? The Federal Reserve made a record profit in 2012! They made over $91 billion. Even better, most of that profit, $89 billion, went right back to the Federal Government! All that money that is being printed is being put to use and making us a giant profit.
Given, that $89 billion only represents one month of money that will be printed in the coming year, but it is things like this that often go over the heads of anti-Fed agitators. That money that is being printed will continue to be put to use and will continue to make us money as long as the Fed continues to buy the debt.
Don’t worry if this doesn’t make sense to you. I only marginally understand all the intricacies of how this works. Maybe this will help. Say the Federal Government pays you $100,000 to perform work. You may think that the Federal Government would then be out $100,000. You would be wrong. You are taxed on that $100,000. Let’s say your tax rate is 20%. That means that you’re really only getting $80,000. So the Federal Government gives you money and almost immediately takes some of it back it back. That is the gist of the relationship between the Federal Reserve and the Federal Government right now.
This is also why infrastructure spending is such a no-brainer. It requires hiring a lot of workers and a good percentage of that money the Federal Government gives to those workers comes right back to the government! All that and it improves conditions to grow the economy!