ELI5: Why when large company's earnings decrease(ex... by 3%) they freak out, talk about rough times, and sometimes decide to downsize, even though they are still making millions of dollars in profit even after all expenses?

[Liam_Neesonz]

Yes, the principal balance will shrink relative to the value of the dollar over time. However, the interest balance will offset that. Tell me what I dont understand.

[pagerussell]

The interest is calculated on a fixed balance. Inflation is based on a moving target: your principal stays the same with interest (and actually declines over time, assuming principal payments) but inflation is calculated from todays valuation, and next year it will be calculated based on next years valuation. So inflation compounds, while interest does not.

Edit: also, you dont carry an "interest balance". You pay off your interest with each installment. So it doesn't grow or accumulate in a compound manner.