The 2% Solution?
In testimony after testimony; speech after speech, Whirlybird Ben extols the virtues of his great plan to fix the inflation rate at 2%. Notwithstanding the misguided & ludicrous assumption that he and his successors would be any better at this than the legions of central bankers who've gone before, we wonder if he has actually done the math to see the results of his folly. At 2% per year, assuming no miscalculation or error, in 10 years the taxpaying consumer loses 20.3% of his or her purchasing power. In 25 years half of it disappears and over a 50 year span 86.5% goes away. We have ample evidence, from the failure of Fed policy to meet its mandate of stable prices vs. the 3.4% average inflation rate of the past 100 years, to dismiss the concept altogether. What worries us is that for that past 100 years the target rate was to be zero inflation. Giving the stiffs at the Fed an additional 2% leeway does not inspire confidence.