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Central Banks’ 2% Plan to Impoverish You

charleshughsmith.blogspot.com / CHARLES HUGH SMITH / WEDNESDAY, DECEMBER 10, 2014

The 2% target is low enough that the household frogs in the kettle of hot water never realize they’re being boiled alive because the increase is so gradual.

A comment by correspondent David C. suggested the importance of demonstrating the impoverishing consequences of central banks reaching their 2% inflation target. David observed: “That central bankers aren’t all hanging by their necks from lamp posts everywhere is a testament to how scarce are those who grasp exponents and compounding.”

Anyone with basic Excel skills can calculate the cumulative impoverishment caused by central banks’ “modest” 2% annual inflation. Here is my worksheet:
Column 1: year
Column 2: index starting with 100
Column 3: annual inflation sum (2% of previous year’s total index)
Column 4: cumulative total index
1    100.00  2.00  102.00
2    102.00  2.04  104.04
3    104.04  2.08  106.12
4    106.12  2.12  108.24
5    108.24  2.16  110.41
6    110.41  2.21  112.62
7    112.62  2.25  114.87
8    114.87  2.30  117.17
9    117.17  2.34  119.51
10  119.51  2.39  121.90

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