Compounding Interest

Albert Einstein, when asked what he considered the most powerful force in the universe, replied "Compounding interest".

Its February and time for the early spring RRSP ritual. Wealthy barbers and other pundits will be deluging us with advice about dodging taxes and retiring to a life of luxury on a beach in paradise. The advantages of investment will be extolled and the cornucopia of mutual funds examined, but no one will tell you the downside, the negative side effects, of compounding investment.

Remember Mickey Mouse as the Sorcerer’s Apprentice? Mickey learns how to get the brooms to do his work while he relaxes, the brooms cleaning up and carrying water. But Mickey can’t turn off the magic brooms and he’s swept away by the overflowing water..

The global economy is perilously close to falling into deflation and depression caused by overproduction. Too much investment money is chasing too few opportunities.

The world is awash in commodities and products. Today’s ratio of investment to purchasing power spells unemployment and a ratcheting down of environmental and social standards in Canada as well as South-East Asia. There is too much oil, too much pulp, hogbellies and minerals - too many running shoes, VCR’s and cars.

Well then, Canadians will just have to spend more in consumer support of the economy. But Canadians, like other citizens of the developed world, already have an ecological footprint (a measure of their per capita use of the world’s resources) five times higher than the global average. Our economy is already grossly overbuilt, obese and wasteful. The average Canadian is already deeply in debt. Do we really want more junk? More stress? More cancer or heart disease?

Through your RRSP you are also contributing to both global warming and ecosystem degradation. Because a warmer atmosphere breeds more powerful hurricanes, and because clearing forests for bananas and burgers contributed to the flood damage, in some small but definite way your RRSP may have helped hurricane Mitch kill over 10,000 people in Central America.

The mutual funds in your RRSP are also part of a gynormous speculative bubble that rivals 1929. The Wall Street price to earnings ratio is currently an unprecedented 33-1 with fund managers desperately seeking any new ephemeral investment opportunity.

RRSP investment isn’t always a good thing. What is needed is a full cost accounting of the negative effects as well as the obvious benefits of investment. What is needed is for investors to wake up to their potential for doing damage. Freedom 55 is after all predicated upon continuing environmental, social, economic and personal health.

For Commentary, this is Bill Henderson in Gibsons, B.C

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