Einstein on compounding interest

Time to suggest that interest on interest should be forbidden as a nation wanting to be a good global citizen.

In other words if I borrow $100 off you and give you a promissory note to pay $200 back to you in seven years then that is $100/7 or $14 per year interest or 14% interest.

Now what we have now is compounding interest where $14 if added to the $100 in the first year and 14% is then changed on $114 for the second year.

The above I could do in my head as most people can understand but compounding interest bamboozles the brain. What is 14% of $114.

Stumped .

Well 10% of $114 is $11.40 and so we know $1.14 is one percent so four percent is $4.56. Add 4% to 10% we get $11.40+$4.56= $15.96

Then tell us what 14% of $114+$15.96 is?

My head hurts and we are only counting the interest after the second year of seven years. No wonder the world population is ignorance of the true cost of compounding interest.

Remember the story of a king who took advice from a wise person for the payment of a grain of rice doubling for each square of an 8x8 chess board.

1,2,4,8,16,32,64,128 (that is just the first line of the 8 lines on a chess board.

Yr0 $100.00

Yr1 $100.00+$14.00

Yr2 $114.00+$15.96

Yr3 $129.96+$13.00+$5.20

Yr4 $148.16+$14.82+$5.64

Yr5 $168.64+$16.87+$6.80

Yr6 $193.11+$19.32+$8.00

Yr7 $221.00

But the key to compounding interest is the longest time frame.

So get people into debt as young as you can. Like purchasing a house for example. Or if it is a car then a much higher interest rate.

In the chess board we have 248 grains rice across the first line. Second line 256,512,1024,2048,4096,8192,16384,32768

Also in the above compounding interest we are calculating the compounding interest over the whole year and not on a daily rate.

$100 at 14% over a year is $114. But the second year it's $114 at 14%

However if you owe on a daily rate then $14/365 is 4 cents per day. And so $100.04 at 14% /365

So all this confuses the average person and below the mean on the street.

In the above situation we find $100 at 14% interest per annum is $200.

But $100 at 14% compounding is $221.00 or 10% more that is 20% more on the interest part.

So for a county to get out of debt a law of the land is that interest on money is permitted but interest on the interest is forbidden. That makes calculations easy to understand.

A simple statement like that at a district level is also important to see that the local people are not sliding back into despair because that is what happens when compounding interest becomes runaway.

At the end of the second line of the chess board we have 65,000 grains of rice added to the 248 grains of rice the line before.

Now if the term of the loan was 21 years on $100 at 14% interest compounded daily 

Well that is too hard for me to calculate.