CD's time period expires, you either roll it over, or put it somewhere you can do better, or just return the funds to your deposit account for use. You could chose to do this with tsy's instead of CD's. It's just moving things around that are already there. Think of tsy's as CD's and reserves as deposits. These are just changes in asset composition, the economic difference being in liquidity and interest. Bond issuance is unnecessary. It's a hold-over from the gold standard days. Interest on government bonds constitutes a subsidy to bond holders. The Fed could accomplish the same thing by paying interest on excess reserves directly. But that would break the illusion. Steve, understanding this depends on understanding something of national accounting. At the macro (aggregated) level, government deficits increase nongovernment net financial assets (initially in deposit accounts). Treasury issuance, which is legally required to offset the deficit, just transfers that amount from deposit accounts (aggregated) to savings (aggregated) in the form of tsy's. Because it is a $-4-$ offset, the numbers are (~) equal. Thus, the national "debt" as accumulated budget deficits is the national (dollar) savings of nongovernment. While the funds that Treasury disburses circulate at the micro level, at the macro level, the same amount gets saved as Tsy's due to the offset requirement. This is not obvious at the level of the economy, where the disbursed funds go every which way, but it is obvious at the level of what happens in the Federal