Due to some some confusion in this area, lets talk a bit about how the American Gov does finance its debt and how the Fed can and does manipulate interest rates.
To understand this lets presume that private investors start dumping Treasury securities. pushing interest rates up. In response the Fed steps in buying them with printed money (nowadays a series of blips in a computerized system).
The money from the proceeds flows to the banking system placing the banks in position to lend a bit of it and place the bulk with the Fed as additional reserves known as excess reserves, which are payed interest by the Fed of 0.50%, if I am not mistaken. Since the profits being made by the Fed are in a large way transferred to Treasury this means that piratically the US gov can borrow some of the money that it needs at marginally over 0.50%.
