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Calculating Interest

Interest Rates

The following example is shown to show the effect of interest rates and compound interest rates.

Example on compound interest rates (used today):

Let’s assume we had the equivalent of 100 Euros in year 0.

Let’s assume there is a interest rate of 4 % p.a. (per year) on these 100 Euros. After 2000 years you will have more money than available worldwide. Let’s check the details.

Using the compound interest formula we can calculate the resulting interest rates.

Amount after n years = 100 (Euros) * (1.04) to the power of n (number of years)

For 10 years this gives: 148.2 Euros (48.2 Euros interest)

For 100 years this gives: 5050.49 Euros (4950.49 Euros Interest, 100 Euros pay-back)

For 200 years this gives: 255 074.98 Euros (254 974.98 Euros Interest)

For 1000 years this gives 10 797 899 941 665 507 969.59 Euros (10 trillion Euros Interest).

After 2000 years we arrive at 1,16594643150219980412675240849e+34 (more than 11 000 quintillions).

For comparison: The worldwide monetary assets before the financial crisis were at around 100 billion (i.e.: 100 000 000 000). The worldwide economic output is around 50 billion per year.

Conclusion: Starting with 100 Euros at year 0 with a compound interest rate of 4% makes far more more money than available worldwide after 1000 years. - This proves the weakness of a financial system based on interest rates (especially compound interest rates).

Our current financial system in based on the system of compound interest rates.

This example clearly shows, that

  • using (compound) interest rates is making wealthy persons/countries more wealthy (those receiving interest) and poor countries poorer (those having to pay interest)
  • interest rates are hard to earn - especially long term (this is the reason why with the current system there is a need for economic growth all the time) - if there is no economic growth the system collapses

Therefore, if the current system (compound interest rate based economy) is maintained future economic crisis are foreseeable.

There is good reason for the biblical ban on interest.

Now an example with (non-compound) interest rates:

Starting with 100 Euros in year 0 at 4% interest rate we get:

formula for amount after n years: 100 Euros + 100 Euros * 4% * number-of-years

after 10 years: 40 Euros interest + 100 Euros loan to be paid back

after 100 years: 400 Euros interest + 100 Euros loan to be paid back

after 200 years: 800 Euros interest + 100 Euros loan to be paid back

after 1000 years: 4000 Euros interest + 100 Euros loan to be paid back

after 2000 years: 8000 Euros interest +100 Euros loan to be paid back

The comparison shows that the pressure compound interest rates (as used today) put on people is tremendous, with long term loans. In fact this is not workable long term.

 

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