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Do proceeds of maturing Treasuries on Fed’s Balance sheet go to the Treasury?

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I will apologize in advance for asking this question because I am pretty sure Cullen has explained this, but after looking at several of Cullen’s past posts on this topic, I didn’t find the precise answer. I know that the Fed can just sit on the bills, notes, and bonds it has and let them mature. When those Treasury securities mature – say (for example) $10 billion in a given month – does the $10 billion go to the Treasury, thus making the $10 billion available for spending by the government?

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Posted by (Questions: 21, Responses: 60)
Posted on 09/22/2017 4:58 PM
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No. The $10bn simply disappears.

In order to repay a maturing Treasury bond, the Treasury will either have to tax or borrow first. Let’s say it raises the $10bn by taxing the general population. In aggregate, the bank accounts of the population will be debited by $10bn, banks’ reserve accounts will be debited by the same amount and the Treasury’s reserve account will be credited by this amount. Then to repay a maturing $10bn Treasury bond held by the Fed, all that happens is the Treasury’s reserve account is debited by $10bn. That’s essentially it. The net result is that $10bn of reserves have been destroyed (not particularly important) and $10bn of broad money has been destroyed. This is why letting bonds held by the Fed mature, with no reinvestment, is quantitive tightening.

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Posted by (Questions: 7, Responses: 92)
Answered on 09/22/2017 7:02 PM
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Thank you Robert.

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Posted by (Questions: 21, Responses: 60)
Answered on 09/25/2017 8:40 AM