If the security is not mature when bought, it can be sold by the Fed to control inflation, again at public auction. Otherwise the Fed can replace the mature securities with new securities from the Treasury, as a straight across swap and hold these for sale to others. It is important to distinguish the debt of the United States to certain banks because of Treasury’s purchase, and the ongoing obligations implied in the securities to repay at maturity. A security is like a $100 bill with a redemption date on it. It can serve more than one debt obligation, just as a $100 dollar bill can. If the Fed holds it at maturity, it does not have to be paid after having bought it. It is the government as much as Treasury. It would be the same as the Treasury holding the mature security. It would not pay itself.

The Fed is a creation of the Congress, and hence is government. The Fed is so situated within the government as to be independent of political control. Still it must report to Congress several times a year. To achieve this independence, it is prohibited from buying Treasury securities directly from the Treasury. It receives no appropriations from Congress but gets its money for operations from transaction fees on purchases of securities of 6% of the interest. It’s executives are appointed by the President but for terms that last beyond the terms of the President.

So, deficit spending produces no national debt at the Fed.

1842 was part of a major economic depression period for the USA. It was shortly after President Andrew Jackson terminated the USA’s central bank, the equivalent of today’s Federal Reserve. The USA government, and not an independent bank, became the custodian of the USA funds. It didn’t work out so well then. If the USA Dollar loses its status as the world’s reserve currency, it probably won’t work out so well for the either Federal Reserve or the USA economy this time either.