Saturday, April 20, 2013

The time value of money


Save 5 dollars a day (the price of a cup of coffee) every day for 30 years, compound the interest, adjust for inflation (say 10 percent) and you will have one million dollars.  Then you can withdraw 50,000 dollars a year, every year, for ever.  That is how you fund a pension.  Einstein said the strongest force in the universe is compound interest.  I believe him.

Who started the concept of interest, the time value of money, the original derivative?  Jesus actually got mad, for once, and kicked the money changers out of the temple for charging interest.  It is interest rates, consumption, greed and our exponential biological population expansion that forces our economies into mindless, unsustainable growth.  Einstein also said if you accelerate something fast enough, it gets smaller.  What about a dollar?  What about the world?