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Compound Interest: The Ghost of Investment Past
Pinnacle Digest writes: With interest rates stuck at near record lows for the past 4 years and into the foreseeable future, the power of compound interest has been destroyed. Bernanke and the central bank policy makers around the globe are stealing wealth and power from their people while they refuse to let the free market correct. It was Albert Einstein who stated,
“Compound interest is the eighth wonder of the world.
He who understands it, earns it ... He who doesn't ... pays it”
Benson explains that, because growth is a natural phenomenon, the human race, in general, can take advantage of natural law by putting off consumption today and investing in the future. This is the force behind compound interest. To have a healthy, long term economy that thrives and expands naturally, it has to be based on savings and calculated investment. What we have today is a 'hot potato' economy, where money is hot and needs to move fast to catch a return. This is the Fed's invisible hand, stealing money from citizens as purchasing power erodes year after year, at the hands of flawed economic policy and negative real interest rates.
The Federal Reserve has locked in low rates and by locking the yield of the 10-year Treasury at 1.6%, it’s well below the rate at which staples like food, energy, utilities, transportation, education, and health care, are rising in cost. Benson explains that today, and as far as the eye can see, real inflation is well above interest rates.
Einstein fled Germany as it was turning into a National Socialist Party with a dictator and command economy. In a command economy, interest can be fixed by the government at zero or even negative, and savings accounts can be stolen.
Similar to how Einstein fled Europe, American investment is leaving the country. Einstein knew that if interest rates were set at zero and well below the rate of inflation, capitalism would die. Ben Bernanke and the Federal Reserve have made their intentions very clear.
In closing, Benson states that,
"Trying to run an economy without real interest rates is like trying to run the universe without gravity. It doesn’t work."