As we watch much of the world fall into deep financial trouble, the list of reasons given for the tumble is long and various. Some say it was the U.S. housing crash that brought down the world (which was always a preposterous claim) while others say it was lack of banking regulations. Still others point to credit default swaps and derivatives.

While the white collar crime (which is fully sanctioned by our government) hastened our trip to the end; for two provable reasons, the end would have come eventually regardless of the shenanigans of America’s most educated thieves. My friend Mark often says, “If there is a devil amongst us, he surely lives on Wall Street.”

The two provable reasons that I was referencing above are; exponential growth, and compounding interest, which in reality are one in the same.

I’m sure that you get tired of hearing the term “exponential” and so at times I change it to geometric, or ever greater, or never ending, to give you a break. But no matter how we state it, it’s still impossible in a world that stubbornly remains the same size.

On that accord, let’s focus on compounding interest. We’ll apply Mikeronomics to the problem to make it easy for me to understand.

Please try and envision the following: Literally TRILLIONS of dollars are loaned out at varying amounts of interest around the world. Therefore, every day, seven days a week, one of two things is happening. Either more money is being printed to pay that interest, or the rich are getting richer and the poor are getting poorer.

As the interest is earned, the same is re-loaned to gain more…interest. The interest from the interest is then re-loaned to gain more interest on the interest that was gained on the interest. The interest on the interest that was derived from the previous interest on the interest is then re-loaned…well…you get the picture. Compounding interest is the perfect example of the exponential function. Like I said before, it’s impossible.

It is paramount for the money to be created each and every day to match the global phantom interest that was earned the day before. If not, eventually, citizens and states and nations would go into default; often referred to as bankruptcy. What we have here is a mathematical impasse.

Unless that is, the physical economy and the population could grow at the same exponential rate as the compounding interest; which is exactly what we have attempted to do by increasing population through both legal and illegal immigration with our eye on greater consumption.  

Sure it worked when the world was new and sparsely populated. All sorts of new collateral could be produced by consuming the earth’s resources and expanding the human population. But long term, our systems of physical economic growth and that of manmade finance are incompatible with a landmass that is static in nature.

What I’m saying is that our monetary system is mathematically fatally flawed and always was.  

Let me give you a real life example of exponential growth in a finite world that we can compare directly to our monetary system. The mighty Colorado River at one time flowed with such force as to carve the Grand Canyon, one of the seven natural wonders of the world. (The eight natural wonder is certain to be human stupidity).

Desert cities such as Phoenix, Arizona and the megalopolises’ of Southern California grew exponentially from the bounties of the waters flowing in the Colorado without ever considering physical limits.

There was of course a problem; the water in the Colorado River didn’t grow at the same rate. In fact it shrunk due to the evaporation effected by 100 degree temperatures on the massive surfaces of desert reservoirs such as Lake Mead, Lake Powell, and Lake Mojave.

Today, one can walk across the Colorado River in your tennis shoes at Yuma, Arizona where the Colorado passes into Mexico. There is no more water; after all, it was always finite in nature.

Yet, Phoenix, Tucson, San Francisco, Los Angeles, and Las Vegas must all grow exponentially to survive under our present economic system.

Our monetary system is no different; if in fact our physical economy does not grow in an exponential manner, our current system of finance is doomed to fail; and it always was.