Understanding The Fed

Quantity	2006 Value	Source
U.S. National Debt	$8,451 Billion	GPO Access Page 24
U.S. National Debt Interest Payments	$406 Billion	Treasury Direct
Dollar-weighted Interest Rate (Approximate)	4.80%	$406 B / $8451 B * 100%
Net Individual Income Tax	$1,044 Billion	Tax Policy Center
Percentage of Individual Income Tax Allocated to Debt Paymnets	38.9%	$406 B / $1,044 B * 100%
National Debt Held by the Government	$3,622 Billion (42.9%)	GPO Access Page 24
National Debt Held by the Public (all non-government holders, including foreigners)	$4,829 Billion (57.1%)	GPO Access Page 24
National Debt Held by Foreign Holders	$2,103 Billion (24.9%)	Department of the Treasury
National Debt Held by the Fed (including Federal Employess G Fund)	$784 Billion (9.3%)	Federal Reserve Page 22
Interest Paid to the Fed	$36.5 Billion	Federal Reserve Page 23
Money returned to Treasury from the Fed	$29.1 Billion	Federal Reserve Page 23
Net Cost of the Fed	$7.4 Billion	$36.5 B - $29.1 B
Percentage of Individual Income Tax Lost to the Fed	0.71%	$7.4 B / $1044 B * 100%

According to HowStuffWorks.com, "Any money the Fed has left over after it pays all of its expenses are sent to the U.S. Treasury. Since the Federal Reserve System began in 1914, about 95 percent of the Reserve Banks' net earnings have ended up being paid into the Treasury. " Source

What about the interest payments that are going to foreign investors? Those foreign investors have bought U.S. government securities, which provided funding for our government's budget. That keeps our taxes low. By utilizing loans of this nature, our tax obligations can be spread out into the future when we may be more capable of paying them.

The Fortune Encyclopedia of Economics pg 356-357 says, "The main purpose of a central bank is to regulate the supply of money and credit to the economy. ... the Fed uses its congressionally granted authority to create money. The Fed creates money in three ways."

"First and most important, the Fed can purchase U.S. government securities from financial institutions by simply creating "funds" (credits) on their balance sheets in exchange for the securities."
"... the discount rate, the interest rate the Fed charges on loans it makes to banks."
"... regulating the proportion of liquid reserves that banks must keep on hand."

"Private banks like to loan money to the government by buying government securities because they are the safest investment available." Source