Best of the Week
Most Popular
1.The Brexit War! EU Fearing Collapse Set to Stoke Scottish Independence Proxy War - Nadeem_Walayat
2.London Terror Attack Red Herring, Real Issue is Age of Reason vs Religion - Nadeem_Walayat
3.The BrExit War, Game Theory Strategy for What UK Should Do to Win - Nadeem_Walayat
4.Goldman Sachs Backing A Copper Boom In 2017 - OilPrice_Com
5.Trump to Fire 50 US Cruise Missiles To Erase Syrian Chemical Attack Air Base, China Next? - Nadeem_Walayat
6.US Stock Market Consolidation Time - Rambus_Chartology
7.Stock Market Investors Stupid is as Stupid Goes - James_Quinn
8.Gold in Fed Interest Rate Hike Cycles- Zeal_LLC
9.The BrExit War - Britain Intelligence Super Power Covert War With the EU - Nadeem_Walayat
10.Marc Faber: Euro to Strengthen, Dollar to Weaken, Gold and Emerging Markets to Outperform - MoneyMetals
Last 7 days
EURUSD at a Critical Point in Wave Structure - 23rd Apr 17
Stock Market Grand Super Cycle Overview While SPX Correction Continues - 23rd Apr 17
Robert Prechter Talks About Elliott Waves and His New Book - 23rd Apr 17
Le Pen, Melenchon French Election Stock, Bond and Euro Markets Crash - 22nd Apr 17
Why You Are Not An Investor - 22nd Apr 17
Gold Price Upleg Momentum Building - 22nd Apr 17
Why Now Gold and Silver Precious Metals? - 22nd Apr 17
4 Maps That Signal Central Asia Is at Risk of War - 22nd Apr 17
5 Key Steps For A Comfortable Retirement From Former Wall Street Trader - 22nd Apr 17
Can Marine Le Pen Win? French Presidential Election Forecast 2017 - 21st Apr 17
Why Stock Market Investors May Soon Be In For A Rude Awakening - 21st Apr 17
Median US Household’s Wealth Has Declined by 40% Since 2007 - 21st Apr 17
Silver, Platinum and Palladium as Investments – Research Shows Diversification Benefit - 21st Apr 17
U.S. Stock Market and Gold, Post Tomahawks and MOAB - 21st Apr 17
An In Depth Look at the Precious Metals Complex - 20th Apr 17
The Real Story of China’s Strong First-Quarter Growth - 20th Apr 17
3 Types Of Life-Changing Crisis That Make You Wish You Had Some Gold - 20th Apr 17
The Truth is a Dangerous Thing - 20th Apr 17
2 Choke Points That Threaten Oil Trade Between Persian Gulf And East Asia - 20th Apr 17
Gold’s Next Downside Target Is Around $700… Even if It Breaks Up First - 19th Apr 17
SPX May be Completing its Corrective Pattern - 19th Apr 17
Silver Production Has “Huge Decline” In 2nd Largest Producer Peru - 19th Apr 17
Soothing East Asia's Nerves as Trump's Administration Reaffirms US Power in Asia-Pacific - 19th Apr 17
The Brexit War - Article 50 Triggered, General Election 2017 Called - Let the Games Begin! - 19th Apr 17
Plungers Big Trade - The Oil Short - 18th Apr 17
The Smart Money Is Piling Into Regenerative Medicine - 18th Apr 17
If You Invest In Stocks Now, Expect No More Than 3% Returns In The Next 20 Years - 18th Apr 17
Maps That Explain Wars In The Middle East And North Africa - 18th Apr 17
Theresa May Calls Snap BrExit UK General Election Capitalising on Crippled Labour Party - 18th Apr 17
Is US Economy at the Cusp of the Next Recession? or Maybe Worse? - 18th Apr 17
US Housing Market Mortgage Delinquency Rates Increase & 3X ETFs - 17th Apr 17
Trump US North Korea First Strike Smoke and Mirrors, China is the Real War Target! - 17th Apr 17
Now Is The Time To Invest In Canada’s Marijuana Boom - 17th Apr 17
History of the Post WWII Crude Oil Price From a Technical Perspective - 17th Apr 17
Stock Market Bounce Coming? - 17th Apr 17

Market Oracle FREE Newsletter

50+ Global Markets. Today's Top Opportunities. (April 12-20)

Compound Interest and the Debt Bubble

Personal_Finance / Debt & Loans Jul 11, 2012 - 03:32 PM GMT

By: BATR

Personal_Finance

Best Financial Markets Analysis Article"Compound interest is the eighth wonder of the world. He who understands it, earns it ... he who doesn't ... pays it." Albert Einstein

Without a comprehensive understanding in this axiom of the financial universe, much of public policy and finance is incomprehensible. The different positions of the borrower and the lender is obvious, but the notion that one can earn enough interest on savings to maintain the purchasing power of the principle is a bygone fantasy in the era of low interest rates.


Here is how compound interest works for the depositor.

An amount of $1,500.00 is deposited in a bank paying an annual interest rate of 4.3%, compounded quarterly. What is the balance after 6 years?

The balance after 6 years is approximately $1,938.84.

Contrast the difference between being the lender to that of the debtor and you get a very different result.

A Dr. Cabler provides this account.

"If someone came up to you on the street and said they would give you a crisp, new $20 bill, and the only stipulation is that you give them back $40 tomorrow, you’d probably tell them just what they could do with that $20 bill.

Anyone you ask would say that’s a bad deal, but when you demonstrate that borrowing money by using credit cards and consumer debt is exactly the same thing, these same people (who are in debt) give a puzzled look, and for some a light turns on and they begin to understand. But for others, they just refuse to see that debt, and the compound interest that comes with it is a major drag on your finances and ends up making your poorer ever single time."

Therefore, the simple distinction between earning next to zero interest on your bank deposits, while paying usury rates on your consumer debt charge cards or lines of credit, is a guaranteed formula for personal bankruptcy.

Now deepen this dilemma with the insights learned from the national Ron Paul effort to educate the public on the horrors of the privately owned Federal Reserve System.

Eric Padden clarifies the sham that underpins the monetary fraud that enslaves the entire planet, in Inflation explained - Dollar Bubble - Government Debt Bubble.

"Most people do not understand that we don’t just print the money via the Fed. We borrow it at interest and it is that compounding interest that is the root cause of the enormous government debt bubble we have today.

The most frustrating part of this to me is that it is completely unnecessary. Our currency should simply be created through our treasury as described in our constitution without interest. In this way we could pay off our deficit in no time and build a healthy economy.

Every since the Fed ( a private banking cartel with its roots in Europe ) hi jacked our economy in 1913 the dollar has lost 98% of its purchasing power due to the constant, systematic increase in our money supply. Ever increasing Inflation is the only possible result of the Feds monetary policy."

This simple and accurate explanation goes unknown to the average indebted serf who is desperately carving out a meager existence. This strangle hold burden built upon debt created fiat money is an engineered system of theft and subjugation. The obligation bubble that grows exponentially without any prospects of paying the interest without the infusion of higher levels of new Federal Reserve debt is the fundamental mechanism that guarantees an ultimate default.

The eternal debate is between the natural deflationary forces seeking to cleanse the excessive leverage and the hyperinflation urges to keep infusing the next fix of liquidity to band-aid a terminal Ponzi scheme of larceny. In either case, the underpinning objective is to get out of paper debt obligations or claims on loans that can no longer be serviced.

Transferring out of accounting ledger entries into solid assets requires a foreclosure on the entire financial debtor economy. Do not be fooled that a recovery is possible. Rational people intuitively struggle to pay off or down their debt. However, the dramatic forces of fractional reserve banking provide the financial power to throw the system into receivership.

Michael Hudson in Productivity, The Miracle of Compound Interest and Poverty, makes a case why the poor always gets poorer.

"And indeed today, markets are shrinking in many countries. But not because people are saving out of prosperity. The jump in reported "saving" in the National Income and Product Accounts (NIPA) in recent years has resulted from repaying debts. It is a negation of a negation – and hence, a statistical "positive."

Paying off a debt is not the same as building up liquid savings in a bank. It reflects something that only a very few economists have worried about over the past century: the prospect of debts rising faster than income, leading to financial crashes that transfer property from debtors to creditors, and indeed polarize society between what the Occupy Wall Street movement calls the 1% and the 99%.

"Wealth creation" by debt leveraging – that is, asset-price inflation – was celebrated as a post-industrial economy, as if this were a positive and natural evolution. But in reality it is a lapse back into a rentier economy, and even into a kind of neofeudalism. The post-2008 bailouts have vested a new rentier elite to lord it over the 21st century, thanks to the fact that most gains since 1980 have gone to the 1% – mainly the financial sector, not to the 99%."

This is not simply a class struggle equation that blames the much-maligned 1%. The basic banking racket is the cause of the continuous bust cycles. During each of these designed implosions, the international banksters consolidate their control over the finances of their indentured customers.

As the final bubble approaches, an eruption of volcanic propositions is poised to realign the entire monetary structure of world commerce. Face facts, the banks are ready to foreclose on the assets they do not already dominate.

James Hall – July 11, 2012

Discuss or comment about this essay on the BATR Forum

http://www.batr.org

"Many seek to become a Syndicated Columnist, while the few strive to be a Vindicated Publisher"

© 2012 Copyright BATR - All Rights Reserved

Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.


© 2005-2016 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in

Catching a Falling Financial Knife