Broken Debt

Inflated Healthcare
Debt Trap
The Federal Reserve Trap
Once Upon a Time a Tenor…

Modern technology is amazing but our ancient forebears built some wondrous things, too. Long-ago historians organized them into “Seven Wonders of the Ancient World.” (Of course, their “world” was the Mediterranean and Middle East. Other wonders existed elsewhere.)

Last week I noted how some call compound interest the Eighth Wonder of the World. Is it really on par with the Colossus of Rhodes? Maybe.

But today the Colossus is gone. So are the Hanging Gardens of Babylon. In fact, six of the seven wonders are now dust, and the Great Pyramid is slowly joining them. Compound interest seems headed in the same direction. Great while it lasted, but nothing lasts forever.

The miracle of compounding happens only when two things occur:

  • First, interest rates are a positive number significantly greater than zero.

That has been less so in recent years, and low inflation expectations are a prime reason. Which brings us to the second thing:

  • Interest rates have to exceed inflation.