Good Morning everyone out there in the real world; your King of Simple News is on the air.

If the traffic through our little mountain community heading for the high country is any indication; no one is left to read today’s post. But then, that is the power of the internet because it will right there on Monday for all to read when they come home for camping and other festivities.

Tomorrow is an important day as it represents the supreme condition that any human can attain; freedom. The 4^th of July is more important to me this year than in years past, as I fear for our freedom and doubt the resolve of the majority of my fellow citizens to  wrestle that freedom back away from our government.

They say that history repeats, and I suppose that it does. Our forefathers had the resolve to brace government and demand freedom at all costs. “Every citizen should be a soldier. This was the case with the Greeks and Romans, and must be that of every free state.” ― Thomas Jefferson

Each of us then, in concert with supporting the troops should also be the troops. We may not wear uniforms, or should I say, we are not required to wear uniforms; because we are free. And that is what the 4^th of July is all about.

Show-Stoppers (part 4)

By Mike Folkerth © 2009

COMPOUNDING INTEREST:

This is an extremely difficult subject to get one’s mind around and therefore I will do my best to simplify the process. But in the end, I assure you that compounding interest is a genuine show-stopper.

The overall societal acceptance of compounding interest follows the false rationalization so eloquently stated by Thomas Paine’s 1776 phrase in ‘Common Sense,’ “Perhaps the sentiments contained in the following pages, are not YET sufficiently fashionable to procure them general favour; a long habit of not thinking a thing WRONG, gives it a superficial appearance of being RIGHT, and raises at first a formidable outcry in defense of custom. But the tumult soon subsides. Time makes more converts than reason.”

The above statement can be applied to our entire impossible economic structure. We fail to question whether our economic basis is fair or even sustainable on the grounds that it has been in place for a very long time. “Better the devil you know.”

Both the Fed and the IRS were created in 1913. Both have been accepted through custom and not that of personal intense examination. I subscribe then to Thomas Paine’s statement, “Time makes more converts than reason.”

I do hope to appeal to your logic and reason and the following statement is based on just that.

“Society is seriously handicapped because its two most important intellectual underpinnings, the science of matter-energy and the historic system of finance, are incompatible.” ― M. King Hubbert, American Geophysicist ― October 5th, 1903 — October 11th, 1989

Dr. Hubbert went on to say, “Money, being a system of accounting, is, in effect, paper and so is not constrained by the laws within which material and energy systems must operate. In fact money grows exponentially by the rule of compound interest.”  [emphasis added].

This brings us right back to the impossibility of exponential growth, which most certainly includes paper money. Compounding interest is a phantom growth of money that occurs 24 hours per day, seven days per week, and 365 days per year. The growth of the paper money supply that is dictated by compounding interest is not booked, nor earned, against any physical growing asset; but occurs all the same.

Dr. Hubbert made the above point much more eloquently than I can by saying, “A reasonable co-existence (between the monetary and physical systems) is possible when both are growing at approximately the same rate.” That, Hubbert says, “has been happening since the start of the industrial revolution but it is soon going to end because the amount the matter-energy system can grow is limited while money’s growth is not.”

In other words, the matter-energy system is confined by the diminishing finite supply available on our planet, while manmade printed money is only confined by the world’s supply of paper and ink! The two are incompatible.

It should also be understood, and certainly obvious in today’s economic storm, that compounding interest occurs regardless of whether the physical economy is growing or contracting. Compounding interest also continues to accumulate regardless of the borrower’s diminished ability to earn as the physical economy stalls.

There are no safeguards, no checks and balances, against the continual accumulation of compounding interest during failing economic times. That is, none other than bankruptcy. This should be abundantly evident in today’s sobering elevated losses of homes, autos, businesses, retirement accounts, and rising bankruptcies, as the shrinking job market eliminates the American public’s ability to pay the ever growing compounding interest.

Regardless of the state of the economy, compounding interest accumulates with every tick of the clock. Think long and hard about that statement.  

In fact, the inclusion of compounding interest in any base monetary system, mathematically guarantees the failure of that system when both exist in a finite world. This is precisely what is occurring in the United States during our present recession.  

Compounding interest is earned, re-deposited, and the former interest then earns interest in an ever growing vicious cycle. Our entire funded National Debt experiences compounding interest each and every day. The current interest payment on the National Debt (June, 2009) is $1.23 Billion per day or $51.4 Million per hour! This is the power of compounding interest and more correctly, the power of exponential growth.

Our National Debt since September 28, 2007 has grown by an average of $3.91 BILLION per day. The existing solution to this unstoppable phenomenon is to add $Trillions to that debt. Trillions that will then become subject to additional interest payments!

Our constant daily increases in both national and private debts are in large part created by the inclusion of compounding interest. This interest is built into our system and automatically creates monetary inflation by requiring the printing of phantom dollars to cover the growing interest. This represents unstoppable automatic inflation which grows exponentially over time. Our economy does not.

No administration, regardless of the continual introduction of ever more drastic measures comprised of social science remedies, can reverse this fatal mathematical certainty; not without revamping our entire monetary system and eliminating the phantom growth of compounding interest. 

The long and the short of this subject is that it will eventually become an impossibility to print (or book) the interest that is earned in a single day! The phantom manmade financial concoction of compounding interest is mathematically impossible to continue in a finite world.

The questions for this section are then, “Where does the money earned by compounding interest come from? How can it simply just appear? And, how can it possibly continue compounding?” Now you know how the rich get richer and the poor get poorer.

“I believe that banking institutions are more dangerous to our liberties than standing armies. If the American people ever allow private banks to control the issue of their currency, first by inflation, then by deflation, the banks and corporations that will grow up around the banks will deprive the people of all property until their children wake-up homeless on the continent their fathers conquered.” ― Thomas Jefferson, 3^rd President of the United States of America and author of The Declaration of Independence.