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Strategies & Market Trends : Mish's Global Economic Trend Analysis
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To: Webster Groves who wrote (77995)4/19/2008 10:54:11 AM
From: Sr K  Read Replies (1) of 116555
 
No, on the line

>>If inflation is 10%, interest rates need to be 12% or 13% to make up for the lost value of the debased currency. In a pure capitalist world-lol.<<

I observed that the "lost value" would not be 10%. Actually, when inflation is 100% you don't lose 100% of money value, either. The process is to divide by (1 + r) or 1.1 in this case which would be 9.09% loss, not 10%.

But I used 2.5% per quarter, no spreadsheet, and just did for $100, $25 a quarter.

$25 divided by 1.025
$25 divided by 1.05
$25 divided by 1.075
$25 divided by 1.1

and added them up to get 94.18 on 100, a loss of 5.82% due to inflation, compared to 9.09% for one annual payment.
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