Where Your Dreams Become Reality
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Subject: RE: Federal loan payments - who do they go to? (please dont delete!)
Let's go back to where you borrow $50.
Say you actually borrowed the $50 straight from the federal government.
Now the fed doesn't have $50 so it issues bonds and borrows $50 from investors. This adds to the national debt.
People have cash sitting around and want a safe place to park it so they buy the federal bonds.
You get your job and pay back the loan of $50 plus $10 interest to the fed.
The fed can give the $50 back to the investor plus $5 interest.
The fed profits $5 from this deal which it can use to cover losses on those that can't pay their loan back. But that loan stays with these people foverer so the fed will probably get still get its money.
Really this all done through an intermediary bank which will collect some of the profit and still be guaranteed payment form the fed.
These investors could lend you the money directly but they feel much more comfortable getting a guaranteed low return from the fed vs risking a better return from lending you money.
The fed will loan you money because they can get it cheaply and have a lot of power to chase you down.
Or something like that.
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