A Lesson on the Power of Compounding

Here's a quick lesson on the power of compounding from the news recently:

In the early months of the Civil War, the city of Tampa needed ammunition and other supplies to defend against attack but apparently was short on cash.

So it issued a promissory note for $299.58 to storekeeper Thomas Pugh Kennedy on June 21, 1861.

Kennedy's great-granddaughter says the city never made good on its loan. Now, Joan Kennedy Biddle and her family are suing to collect the payment plus 8 percent annual interest.

The total bill: $22.7 million.

:-)

Yes, with enough time, even a meager amount can become a fortune.

Of course most of us don't have 147 years to wait for our money to compound, but if we invest early and often in our careers, we'll certainly have a nice-sized nest egg when we retire.

For more on compounding, see these posts:

• The Richest Man in Babylon: Seven Cures for a Lean Purse Part 3, Make Thy Gold Multiply

• The Power of Compound Interest

• Oh the Joys of Compounding!

Comments

[J in FL]

Holy cow... well I must say, this one caught me by surprise. I live in this area and didn't hear about this! (shows how much I track the news)

Anyway, I get the feeling that this case will be lost in court however... oh well, you can always try.

[Anthony Martin]

Wow, what a really great idea. Too bad about the 14th amendment which declares . . . "but all such debts, obligations and claims shall be held illegal and void".

[FMF]

One thought: the document itself may have a decent value. After all, it is a Civil War-era item.

[Foobarista]

Maybe she can get $22.7M in Confederate notes? The note was clearly not intended to be settled with currency backed by the Union.

[Foobarista]

Here's the relevant part of the 14th amendment:

"Section 4. The validity of the public debt of the United States, authorized by law, including debts incurred for payment of pensions and bounties for services in suppressing insurrection or rebellion, shall not be questioned. But neither the United States nor any State shall assume or pay any debt or obligation incurred in aid of insurrection or rebellion against the United States, or any claim for the loss or emancipation of any slave; but all such debts, obligations and claims shall be held illegal and void."

One could argue, I suppose, that debts incurred by a City aren't covered by the 14th amendment - it only mentions "any State" - but another argument is that the intent is that debt incurred by any government entities in rebellion is null and void. I suspect there's precedent from the period shortly after the Civil War that clarifies this point.

[Dave]

Most of us know the power of compound interest. It's just that some investments compound faster than others.

[segfault]

Wonder what the statute of limitations on a promissory note is in Florida? In my state, it's less than 147 years.

[Big Cheese]

Why 8%? That seems hard to justify.

BC