Compound Interest : Friend Or Foe?


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    Dorothea Lange When I was a kid 1936 "American River camp near Sacramento, California. Children of destitute family. Five children aged two to se
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    Seeds as food made compound interest and exponential population growth, not the other way around. Monsanto is simply the industrial expression of the “seeds-for-food-because-they-can-be-controlled-centrally” paradigm.

    The following cannot happen in pastoral/horticultural societies:
    Waiting for grains to be divided by the feudal lord:

    Definitely FOE, but as an effect, not as a cause.

    Ken Barrows

    Compound interest was super when the machines could pay for themselves. That point, however, passed a long time ago.

    I would like to ask Walter if debt can perpetually increase faster than growth. I think he’d look dumbstruck and then say “yes.” Why? Well, because compound interest is the greatest thing ever.

    If all you need was compound interest, everyone could have set aside $1.00 (the equivalent of) in 1 C.E. and become rich.

    A cornucopian mindset needs two things: compound interest and an inexhaustible (automatic?) earth.


    Hi Illarghi,

    Also, as those with mortgages know only too well, you ‘repay’ the interest first before repaying the principle. This works well for [strike]loan sharks[/strike] mortgage lenders as any future increase in interest rate is always levied upon the largest possible remaining principle. Flexible mortgages where you can pay off the principle early can save you very large sums of money further down the line, and you see a good drop in your monthly repayments.

    However on a broader note, the whole concept of indebted slavery is to provide the leverage to get the population to continue using all those resources. After all if people had money and then just bought what they needed (advertising aside) they would have no need to work for more. Where as if you make sure no one has any money whatsoever, and that everything is ‘loaned’ to them, then they end up on a continual treadmill having to ‘work’ to ‘pay’ everything off. ‘Hire purchase’ was the biggest con of all post WWII – by the time you had ‘purchased’ the item, you more often than not needed another one to replace it they should have just called it ‘hire borrow’ or something.

    As for ‘compound interest’ being responsible for modern civilisation, well the guy looks like a maths geek who just walked off the set of the Big Bang Theory. Though he does have a good take on Apple’s [strike]love[/strike] of taxes Besides, as far as compounding goes Red Dwarf did it way back when:

    HOLLY: They’re from the NorWeb Federation.
    LISTER: What’s that?
    HOLLY: The North Western Electricity Board. They want you, Dave.
    LISTER: Me? Why? What for?
    HOLLY: For your crimes against humanity.
    LISTER: You what?!
    HOLLY: It seems when you left Earth, three million years ago, you left two half-eaten German sausages on a plate in your kitchen.
    LISTER: Did I?
    HOLLY: Do you know what happens to sausages left unattended for 3 million years?
    LISTER: Yeah, they go mouldy.
    HOLLY: Your sausages, Dave, now cover seven eighths of the Earth’s surface. Also, you left £17.50 in your bank account. Thanks to compound interest, you now own 98% of all the world’s wealth. And because you’ve hoarded it for 3 million years, nobody’s got any money except for you and NorWeb.
    LISTER: Why NorWeb?
    HOLLY: You left a light on in the bathroom. I’ve got a final demand here for £180 billion.
    LISTER: £180 billion? You’re kidding?
    HOLLY: April Fool.
    LISTER: … but it’s not April.
    HOLLY: Yeah, I know, but I can hardly six months for a red-hot jape like that under my belt. 😆

    Besides, the whole compound thing is all part of the ‘exponential civilisation’ (you heard it first here!): the Exponential Civilisation produced compound interest, not the other way round. :huh:

    Al Bartlett explains all:



    Mortgage interest is compound interest.


    While compound interest can be put into play, it is wonderful if you are the payee, not so wonderful if you are the payer.

    Eventually, it does not work in a finite world with limited energy supplies.

    A public/sovereign sector will default, precipitating a global financial crisis with associated mass extinction of sorts. H. sapiens will change its priorities/adapt or go the way of the dodo bird.

    Golden Oxen

    Compound interest was the greatest thing I ever had the good fortune to have explained to me as a young man of limited means about finance. Some sacrifice and going without at a young age, early twenties, made me independently wealthy. If you find out about it later in life it is of limited value since time is of the utmost importance in realizing it’s amazing benefits.

    The facts about compound interest should be a basic part of all school curriculum in my opinion, and be presented as a way to avoid poverty and become wealthy for all willing to sacrifice at an early age to acquire some savings to participate in the Miracle as it is called by many who understand it’s benefits.

    It is also a process that can be hyped up or speeded up by injecting the compounding pool with additional capital along the way, it magnifies the end result greatly.

    Thank you Benjamin Franklin, Albert Einstein, and my high school math teacher.

    Decades after his death, people have been trying to attribute a quote about compound interest to Albert Einstein. While the quote varies, and attribution is problematic, the sentiment holds true: “Compound interest is the most powerful force in the universe.”

    Another popular quote, with an unknown origin (but sometimes attributed to Einstein) is this: “Those who understand interest earn it; those who don’t, pay it.” A great quote. If you understand compound interest, then you can use it to your advantage, building your assets.


    Golden Oxen,

    While I heartily endorse your sentiment as regards not getting on the wrong side of compound interest – keep out of debt – I think that savings give a pretty poor return these days. I mean, the real interest rate is negative in most places. There is no way another Volcker will come along and sort it out – because the nation states would not be able to pay the interest.

    Golden Oxen

    Hi Nassim,

    Yes, another harmful unrecognized problem from government meddling in markets and destroying savers and thrift while rewarding debtors and borrowers. No answers to the problem from me, but feel certain that their mischief is rewarding very few and costing a great number of us dearly, morally as well as financially.

    Ken Barrows

    If everyone sacrificed and saved, compound interest would be useless. Compound interest requires many debtors, especially today. It is a concept of an “exponential civilization (h/t gurusid)” that is going the way of the dodo.


    Well, it’s obvious there’s a large dividing gap between focusing on compound interest on an individual level and looking at the influence it’s having on the societies those individuals live in. And good on ya if you think you understood it at some point and you believe the wealth it’s brought is a good thing, but if you acquired that wealth in a society that increasingly sees its wealth deplete – or concentrate – because of compound interest, maybe it’s a good idea to wonder how that will affect your good fortune down the line. In my view you can only build so many gates around your home before you start to feel uncomfortable, so you will need to seek some sort of balance. And to just sing the praise of compound interest doesn’t seem to be the best way to attain that balance.


    Interest-bearing financial instruments NOW are just plain stupid places to put your saved capital. Any interest you can earn, including with junk bonds, is nowhere near high enough to compensate you for the risk in which you are placing your nest egg. Better to have it safe and liquid even if there is a modest negative interest rate. Sooner or later it will be most appropriate to convert metals, fiat money and financial assets into durable basic necessities such as toilet paper, toothpaste, soap, water purifiers, solar heaters, first aid equipment, elements for protection etc. to survive in our new environment as the global, centralized societies rapidly vortex down the toilet.


    Compound interest has one pertinent failure-function in this predicament;
    if aggregate production fails to grow commensurately with the metric expansion of credit/debt, the money supply self-saturates and crashes into debt-deflation with mathematical inevitability.

    The article on debt dominion presumes the econometric volume of goods and services is sufficiently motivated to grow by interest earning alone, which is false under relativity of equity and capital gravity.

    It is true that all economic activity is leveraged on a marketable food surplus, credit is principally leveraged off accountable food storage historically. But creditors’ compounding purchasing power only retains equity if allocated to increase food production proportionately to credit flow, otherwise capital formation would price debtors out of the food market, or something.

    Golden Oxen

    And good on ya if you think you understood it at some point and you believe the wealth it’s brought is a good thing, but if you acquired that wealth in a society that increasingly sees its wealth deplete – or concentrate – because of compound interest, maybe it’s a good idea to wonder how that will affect your good fortune down the line.

    Benjamin Franklin was born in 1706 and thought it was a good idea. Three hundred years later and it has worked well for others. Where was the harm, those that utilized it acquired some wealth and those who didn’t remained without.

    Is this article about compound interest, or another left hates the right diatribe on how wealth is bad and poverty good?


    The regular readers and commentators on this blog are well aware of the good and the bad of compound interest.

    Is this article about compound interest, or another left hates the right diatribe on how wealth is bad and poverty good?

    Our social and economic structures result in the perception and belief “wealth is good and poverty is bad” but also the perception and belief is that the causes are due to the actions of the individuals.

    Perception and belief does not lay any of the blame for any of the failures or success on the social and the economic structures.

    What kind of education did we really get?
    Brainwashing?? Indoctrination?


    Neither good or bad, it’s a formula. It would probably be more evil if you used a more wicked font. The underlying problem you alluded to is it’s ignorant application. It being a proxy for growth at all costs, is the real underlying problem. One the one hand early in an economic cycle it provides lot’s of benefits. Later in that cycle, the costs mount, much like nuclear power.


    One the one hand early in an economic cycle it provides lots of benefits. Later in that cycle, the costs mount, much like nuclear power.

    Well, that’s the same as the entire model of perpetual growth, then, isn’t it? Maybe a difference is that we understand the latter a bit more, through physics, while the perpetual element of compound interest has never been that specifically identified.

    The question remains: why are we on a perpetual growth path (be it in a general sense, be it in compound interest in specific) when we’ve known for generations that it can only lead to destruction? Is it our short attention span, is it our focus on our individual interests? Are we simply denying what we know to be true because it doesn’t fit with satisfying our immediate desires?

    Golden Oxen

    The question remains: why are we on a perpetual growth path (be it in a general sense, be it in compound interest in specific) when we’ve known for generations that it can only lead to destruction? Is it our short attention span, is it our focus on our individual interests? Are we simply denying what we know to be true because it doesn’t fit with satisfying our immediate desires?

    If you are suggesting we should have a world without debt and interest, you have my nod of approval. That would be just wonderful. Utopia has always appealed to me, as did the Garden of Eden.

    Sadly however, we appear to be far flung from that glorious state.

    Let’s try and make it a world free of inflation, impoverishing medical bills, politicians, oppressive taxation, as well as bloated military establishments as well while we are at it. Just a few of a very long list of desirable goals.


    Let me restate Mr. Hickey’s argument to show the absurdity that is revealed when one understands the debt based monetary system that envelopes us.

    “Compound Interest Is Responsible For Modern Civilization”

    is a debt money pusher’s deceptive description of…

    “Money Is Responsible For Modern Civilization”

    The money definers (hint, that isn’t you or I) defined money as debt.

    One face of money is the debt receipt (bank credit, physical money excluding coinage).

    The second face of money is the compound interest bearing debt instrument which is separated from the debt so most people don’t reckon it even exists!

    Yes, “money” is literally two-faced, ina Machiavellian kind of way.

    Back to the point – Money is debt, debt accrues compound interest, therefore, money exists simultaneously to compound interest.

    Let’s fool the masses into thinking that compound interest, a banker’s societal asset stripping we dream when it comes to the origination of debt money, is responsible for the action of money. The proles won’t figure it out!

    Mr. Hickey applies to compound interest what actually is attributable to money. It is a slight of hand that not many people will be able to see, simply because they don’t understand the system. None of what he attributes to “compound interest” is actually caused by compound interes. Rather, it was caused by the presence of money. Everything he mentions could have been accomplished with debt-free money as well.

    Nothing Hickey cites would have been accomplished if it was compound interest absent the money face.

    Always be on guard for rhetoric that decieves and improperly frames an argument. Especially when it is a bankster propaganda piece.

    All economic schooled people have been trained to think about money and debt only iin terms of money already existing and present within society.

    The logic goes like this… borrow money, invest in productive asset, accrue more money than principle and interest payment – BRILLIANT!

    What about the original creation of money within society as a whole and what about its ultimate extinguishment? This is not the debt droid you are looking for… move along boys and girls.

    What they almost universally fail to consider is the ORIGINAL introduction of that money and debt into society and how society, as a whole, can or can not pay back that debt – and you can’t understand the financial mechanism that tightens around your financial neck without doing so.

    It took me 5 minutes, in the face of constant and vigorous objection, to explain this difference to a Blackrock employee with a masters degree in finance. Eventually, though, it clicked. The programming is not easy to overcome – our expectations limit our conscienceness.

    Simplifying out the unnecessary complexity that hides the blood sucking, life destroying “Waldo” is key. Let’s go over simple example that holds tight as the complexities are added back in to eventually yield what engulfs us today.

    In the following example, assume that “society” does not include the “lender class.” In reality it does. I make the distinction because these are the two classes that ultimately matter – the debt money defining class and everyone else. That you haven’t ever heard of this class distinction just might be a testament to its importance…

    “To learn who rules over you, simply find out who you are not allowed to criticize.”- voltaire

    You can’t critize what is never even in your consciousness.

    1. Assume $20 is lent to society at 5% interest.
    2. After one year, society owes $21 ($1 bookkeeping interest asset addes to the lender, $1 interest liability added to society).
    3. The total balance sheet matches ($21 total assets and $21 total liabilities in the society + lender class grouping). This balance means that debt doesn’t matter and doesn’t need to be tracked – or so the economists are propagandized. It does matter because the lender now possesses finance control over society.
    4. Society only has $20, but owes $21. The lender now financially controls society. It’s front corporations are now TBTF&Jail and receives bailouts, while everyone else is sold off for peanuts and power is ever more concentrated.

    Using private interests to inject debt based money into society is FRAUD. It is a criminal act that only leads to one thing – exactly what we are seeing today. A criminal financial class that is systematically assets stripping society of everything from its liberties, to its government to its homes and even its dignity. Sometimes the very life of a citizen.

    This nation state lender control dynamic inspired napoleon to observe and say…

    “When a government is dependent upon bankers for money, they and not the leaders of the government control the situation, since the hand that gives is above the hand that takes. Money has no motherland; financiers are without patriotism and without decency; their sole object is gain.”

    While a s-bit tyrant himself, he knew WHOM he was actually fighting, even if the British military was clueless.

    This process has been graphed out to make it easier to understand. it has been viewed well over 15,000 times with a typical anti-matter response. People just don’t seem to be able to grasp that their monetary system is the weapon being used by financial criminal oligarchs to consolidate their country’s wealth and impoverish it.

    Oh, and a “bailout” is when the lender creates $20, pockets it and sends the $21 bill to society, thereby, bankrupting a naive society all the more quickly.

    It is true that blowing credit bubbles based upon fractionally reserved debt money fraud does increase physical output… but only for a time.

    Then the bust cycle is implemented and, as Nicole has pointed out, the bankers tend to “get it all” because, as Napoleon pointed out, “their sole object is gain.”

    This is a Sun Tzu, “all war is deception” military campaign to conquer the world’s nations – right out in plain view, if only people can overcome their propagandized expectation cognitive “box” and do basic 5th grade math.

    Debt Money Tyranny

    PS – the reason that debt grows exponentially is because the system $20 can’t pay the $21 and bankruptcy would be immediate. They don’t want to steal just $20 worth of stuff, so they create another $20 at interest and off to the exponential debt growth races we go until it implodes upon itself and the bankster TBTF&Jail front corporations foreclose on your society.

    PSS – Netflix “The Queen of Versailles” to see how the banksters deal with billionaires that don’t quite understand the debt money system/power structure actually operates.


    Compound interest earned by loaning out credit created from nothing is usury. There is no greater degree of usury possible. This distinction unequivocally renders this debt dominion inequitable.
    A monopoly on credit creation also promotes the coercive conditions for inextinguishable debt and mathematically inevitable bankruptcies at all levels of commerce, allowing a credit monopoly to easily consolidate productive collateral in times of contraction, perhaps with malice aforethought.

    Compound interest earned by loaning out pre-earned money can be equitable, especially to fund productive consumption. The debtor should compensate the creditor for delayed utility of loaned money, its clearly unprofitable to loan out money at zero interest under expectations of inflation.

    Compound interest also forces the money supply into perpetual inflation to maintain stability, it seems modern credit systems are ideally stable under a measure of real inflation higher than the targeted interest rate, gradually impoverishing non-savers and many savers alike. Its not just the debtors financing the benefits of such interest accruing to creditors.

    In this system, any prolonged deflation will cause cascading defaults and dissolve the credit supply, this instability is not intrinsic to money itself, specie coinage didn’t have this problem.

    Not all forms of compound interest are usurous, but the banking systems use of interest-bearing credit loans conjured from nothing [or fractionally derived from grossly overvalued collateral] is outrageously usurous, the financial sectors consolidating leverage over private and public assets by creating inextinguishable debt is a menace to society.

    Also, perpetual growth is only awkwardly bounded if defined by metric expansion, the spatial growth of cities, the mass-volume of global trade or waste heat dissipation for instance, but really, growth is the value of life appreciating.


    Gravity, thanks for the additional insight into the fraud that is debt based money issued from nothing.

    People speak of the “business cycle,” but few know that “business cycle” is a euphemism to cover up the artificial debt based debt expansion and contraction cycle that is used to systematically asset strip people of their hard earned wealth.

    Psychopathic profit searching private interests lending debt based money from nothing is an artifical constraint imposed upon society.

    It need not be this way.

    Some good insights into this societal fraud are found in the following videos:

    Debt is not a Choice

    How to be a Crook

    Renaissance 2.0

    The Secret of Oz

    A big crack in this debt based “matrix” is the concept that one person’s wealth is, BY DEFINITION, someone else’s inextinguishable debt.

    If the Gates Foundation possesses $10 billion in actual cash or equivalents, then someone owes $10 billion in principle in interest that is IMPOSSIBLE to pay back unless the Gates Foundation divests of the cash to pay down that debt.

    That’s right – once the debt money matrix is torn down, the Gates Foundation’s role as a Big Finance Capital bond slave corporate front is revealed for all who ahve eyes to see.

    “It is well enough that people of the nation do not understand our banking and monetary system, for if they did, I believe there would be a revolution before tomorrow morning. The one aim of these financiers is world control by the creation of inextinguishable debt.”
    ~Henry Ford

    “If all the bank loans were paid, no one could have a bank deposit,
    and there would not be a dollar of coin or currency in circulation.
    This is a staggering thought. We are completely dependent on the
    commercial Banks. Someone has to borrow every dollar we have in
    circulation, cash or credit. If the Banks create ample synthetic money
    we are prosperous; if not, we starve. We are absolutely without a
    permanent money system. When one gets a complete grasp of the picture,

    the tragic absurdity of our hopeless position is almost incredible, but
    there it is. It is the most important subject intelligent persons can
    investigate and reflect upon. It is so important that our present
    civilization may collapse unless it becomes widely understood and the
    defects remedied very soon.”
    ~Robert Hemphill
    Credit Manager of Federal Reserve Bank, Atlanta, Ga.
    In the foreword to a book by Irving Fisher, entitled 100% Money (1935)

    TAE Summary

    * All economic activity is leveraged on a marktetable food surplus; Credit is leveraged on accountable food storage; The greatest shortcoming of the human race is eating seeds
    *Compound interest is neutral unless written in Comic Sans; Debt can increase faster than growth; On a long enough timeline the growth rate for mould is infinite
    * Interest is great for the haves, not so great for the have-nots; When immovable finity meets unstoppable infinity what happens?
    * Interest is like Brylcreen, great for the young, marginally useful for most oldsters; Bert and Ernie should teach all children about compound interest; Everyone can become wealthy and retire at 40
    * Compound interest is nice work if you can get it; Compound interest means you need a compound to isolate yourself from your borrowers; The government destroys savers and rewards debtor; Compound interest is going the way of the dodo
    * Compound interest has worked for hundreds of years; Long live compound interest; Wealth is better than poverty; Why must the left hand hate what the right hand is compounding
    * Why must we have perpetual growth? Why can’t people just be celibate?
    * I vote for no debt, no interest, no congressman and no hawaiian pizza; Let’s all just get along; There’s no place like utopia
    * A monopoly on credit creation leads to inextinguishable debt; The business cycle is a euphimism for the blowing and popping of bubbles; The hopeless tragedy of our positional incredulity is absurd


    @TAE Summary – Thanks, always like to read your summary postings!


    Some of your readers may be familiar with the classic, gone-viral video of Dr. Albert Barrett lecturing on ‘exponential growth’ (i.e. compound interest) to a classroom of comatose college students in Texas. If you haven’t seen it, take and hour or so and view here:

    Dr. Barrett takes the ‘down side’ view of compound growth. Cheers!


    Al Bartlett, not Barrett. Must study for everyone.

    Golden Oxen

    Yes, Dr. Bartlett explains compound interest rather well. It’s limitations in the real physical world are obvious.

    What about in the make believe land of fiat currency as a testing of the experiment?

    Sure gets mighty inflationary in a hurry doesn’t it? That’s why there are Gold bugs who seek the precious metal for refuge. Most deflation minded types shun Gold as they consider the fiat explosion to be real, or physical, rather than bankster folly and trickery.


    Hi GO,

    That’s why there are Gold bugs who seek the precious metal for refuge. Most deflation minded types shun Gold as they consider the fiat explosion to be real, or physical, rather than bankster folly and trickery.

    If only…

    Still, there’s life yet in the last ponzi on earth! :dry:



    Debunking Money – How the World Really Works… A++ Video Content

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