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Compound interest’s lethal effects

Wednesday evening , April 1, 2009.

Dr. Albert A. Bartlett Professor Emeritus Department Of Physics University of Colorado

A couple of weeks ago, I found this fascinating video that I strongly encourage you to view. I feel so strongly about it, that I wholeheartedly believe it should be mandatory teaching in our children’s education programs.

Without going into much detail, which you will profusely find in Dr. Bartlett’s revelating lecture, the fundamental tenet is that any growth rate –small as it may be– has surprisingly devastating effects on limited resources, be it oil, food, or water. Hence, the major impact of overpopulation in the relentless depletion of natural resources.

I’ll give one simple example which helped me visualize the power of this phenomena.

Let’s suppose that we have a few bacteria in a bottle, which happen to double their population every minute. If we retrace our steps 10 minutes before the moment the bottle is full, we’ll find very few bacteria, 1/1024 of the volume of the bottle (1/2 one minute earlier, 1/4, 1/8, 1/16, 1/32, 1/64, 1/128, 1/256, 1/512 and 1/1024 ten minutes earlier).

Now, let’s suppose that the bottle represents all the world’s known reserves of oil, past and current, or the total amount of oil that we have consumed plus what we currently estimate we hold in reserves. It’s also widely accepted that we have already consumed approximately half of the total amount of oil in the world –or, that the bottle is half full. We also know that the world population grows at a 1.7% annual rate. Knowing these two facts, a good estimate is that in a little over 41 years the bottle will be depleted of oil.

A much better number would be GDP global growth, which has hovered around 3% for the last 60 years, although a 0.5% is forecast for 2009. Consider the fact that US citizens consume 30 times more energy than the Chinese average. So, let’s accept that world depletion of oil will occur in less than the 40 years, due to the expected increase in the Chinese standard of living. For an average 3% GDP growth, total oil depletion would occur in 23 years —spooky!

Then, our number falls somewhere between 23 and 41 years to depletion.

Let’s assume 32. I promised that the example would be simple.

Suppose that we find 3 more bottles of oil reserves, which would represent a huge amount of oil, 3 times all the oil consumed in the world throughout history extending to 32 years from now. One tends to assume that this huge find would allow us to continue consuming oil for hundreds of years. Not so, it would only last an additional 64 years, or two doublings after the first bottle was empty: 32 years till the first 2 bottles were empty, and an additional 32 till all 4 bottles were depleted.

Now, what do you think happens to a debtor with exorbitant credit card rates?

He would have to double his income every

  • 10 years at 7%,
  • 7 years at 10%,
  • 4.7 years at 15%,
  • 3.8 years at 18.5%,
  • 3.2 years at 22%,
  • 2.3 years at 30%,
  • 1.75 years at 40%,

in order to keep up with the doubling of his payments.

Which, we all know would bring the ruin to anyone facing this insurmountable challenge, as a consequence of the unfair and unbridled interest rate practices of banks.

In other words, a debtor’s blood will run dry soon enough with these devastatingly high rates.

Hi guest,

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