How does the Fed sell bonds

inquisitiveteenager — Fri, 26 Jun 2009 10:35:57 GMT

I get that when they buy bonds they create money out of thin air to increase the bank's ability to lend.

Now I get why they want to sell bonds, to limit inflation so as to avoid hyperinflation.

But when you sell a bond, your promising to pay back a certain amount back with interest.

So the money supply will decrease temporarily but in the long run it can only increase.

Can someboyd please explain this process of buying and selling bonds? It puzzles me.

Economics Questions