The Fed has announced that it is going to purchase $ 600 billion of Treasury debt in order to lower interest rates. How does this work? The Fed gets its money by drawing on a line of credit from Treasury. When there is a budget deficit (as now), Treasury gets its money by issuing debt. So, the Fed buys $ 1000 of Treasury debt, obtaining the money by borrowing from Treasury. Treasury gets the $ 1000 by issuing Treasury debt. This looks like a wash sale, with no reduction in Treasury debt on the market. Bernanke is not stupid. There must be some reason why buying Treasury debt reduces interest rates. Please explain.