The Fed is a quasi government entity. It is owned by its chartered banks (which are private banks) via shares, but it is a government created entity (and since congress created it, they can also get rid of it). Once the Fed's operating costs are deducted from its income, the surplus profits are returned to the US Treasury. At least that is the way I understand the operation of the Fed. Someone can correct me if I am wrong on some point.

If the US Treasury created the money directly, rather than the Fed, we would pay no interest on it since it is "our" money rather than the Fed's money. That is what Ron Paul wants to do. Get rid of the Fed and let the Treasury create money directly as dictated by congress. We could still have the very same monetary debasement that we have now if the Treasury created too much money (to monetize deficits). The big differences would be that 1. we would not be paying any interest on it and  2. the monetization would be completely transparent rather than opaque like the Fed's actions are. Citizens would know when money was being created out of nothing because the Treasury balance sheet and spending is open for public view. The Fed is a very secretive organization. Just watch any of Ron Paul's questioning of Bernanke about the Fed's actions. The Fed does not want to be audited and we don't have enough of congress with any backbone to force them to. The banking industry is very powerful and makes lots of campaign contributions.

The argument against having congress directly authorize money printing is supposedly that the Fed is completely "independent" and therefore not influenced by politics so will do what is right for the country instead of congress being "political" and print money according to political whim. Well once upon a time that may have actually been the case that the Fed was independent and ignored political pressure. Any more the Fed is simply an accomplice to congress overspending by buying all excess bonds the treasury can not sell on the open market. The Fed has become completely political, all the while charging us interest on money it creates for free. Not to mention, when money is created as a debt instrument with interest due, there is never enough money in the system to satisfy both the principal AND interest due. So it makes it a Ponzi scheme. It mathematically HAS to eventually fail.

John