The assertion that interest is
an "exponential driver" is absolutely farcical. It is a mathematical
formula and nothing else that may or may not be applicable to a
specific process. A mathematical formula does not "drive"
anything.
Why not when it drives? It makes difference
what matamatical formula you use to forecast future. Is it exponential formula
(compound interest), multiplication (simple interest) or adding (fee)?
It makes real difference in the speed of
that "drive" you mentioned. All corporational and
governmental institutions forecast future on the basis of exponential
growth, and not on slower formulas. Therefore we must drive faster and
faster...
It is ridiculous to speak of its "effects." Moreover, the
term "compounding interest" as it applies in contracts is utterly
meaningless without knowing the period of compounding. With pond
scum it is something we determine through observation. With
contracts it is determined through agreement between the parties, and
can be anything at all the parties agree to. Whatever the period
of compounding might be as stated in the contract, the underlying debt
does not compound unless interest is not paid when due and therefore
accrues to principal. Whatever the contracted rate and compounding
period and payment schedule it is translatable into the terms of
annualized simple interest. So the simple interest formula is
just as applicable to the contractual process as is the compound interest
formula. Basic math.
Yes, basic, but most sophisticated math says
as something about financial imperatives of compounded growth included in all
prognosis made by corporations. Corporations and careers of top managers are
built on compound growth, yearly checked by governments and owners. If not
growing exponentially, corporations are dying because capital is withdrawn from
them.
cheers
Kristof Levandovski |