Compound interest is the natural rate of growth

  • Daddy’s, Mommy’s and Granddad’s and Granny’s tales of meatballs and chocolates for less that 1 paisa… Horrors of inflation now
  • Stories of radios, black and white TVs staying put for generation and a new generation seeing Color TVs, Computers and the newer generations only knowing the phones, tablets
  • Organs transplant which is still a complex procedure is already being talked about in terms of organ growth. Stories of 3D printing which are now the reality. Organs next.
  • Simple websites until 2000, AJAX websites in 2004 – 2006, COMET, Bayeux, WebSockets in 2009
  • Economic Depression in the 1970s, then the recession in 2001, then in 2008, then whispers of anytime now

As I keep looking at the changing landscape everywhere particularly technology, which is effecting the changes in social, cultural, economic backgrounds. Knowledge unlike any tangible entity keeps building on top of the other. Cross pollination of ideas, mutations, lateral movement builds on top of the other. Small changes keep accumulating on top of the other.  It is easily possible to trace this back to compounding, the natural name of the game. Particularly with Knowledge and Technology it is clearly a rate of growth that is not discernible to the human mind. As humans, we are thoroughly incapable of guessing what can be achieved in 1 week (over expect) vis-a-vis what can be achieved in 10 years (under expect). The human perceptional system is quite incapable of thinking in terms of exponential growth – linear growth only is perceptionally assimilated.

Is it that the signal processing cannot work effectively in a non-linear environment? Are we tuned to ignore the linear movement? Or is it that as humans we also keep moving and the relative velocity (with time) makes it a linear change?

I think time being a invisible entity but then as part of everything is easily ignored. There are times where I do think that every entity *must* be related to a time event.

A one rupee on a modest 10% rate of interest grows to 17 rupees over 30 years. Here is the excel to play around.

The fun begins when you change the rate to 11%, 12%, 20%… Think of this: If you think your company is not paying you well, ask them to pay you a 12% fixed hike every year. No need for a blockbuster hike – you know how that ends, don’t you? 😉


Leave a Reply

Fill in your details below or click an icon to log in: Logo

You are commenting using your account. Log Out /  Change )

Google+ photo

You are commenting using your Google+ account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )


Connecting to %s