I just read an article by John Cassidy in The New Yorker on the economist Paul Krugman. Krugman speculates that at some point in the future, we may be subject to some serious inflation, as bills mount to pay for the baby boomers’ dotage and other countries see that the US is not such a great place to continue shoveling their investments. If that is, or comes, true, where is the best place to have one’s own money should inflation hit? Stocks? Bonds? Real estate? European or Asian stocks? Foreign currency? Gold? Or is there no tellin’?
I think we’re really heading into uncharted territory here. The aging population and the retirement of the boomers will put us in a structural situation we really haven’t faced before. I think economists are still split on what will happen. Japan is facing serious deflation with a similar structure.
I’m worried about a real-estate bubble burst as the boomers retire and move into smaller, less expensive housing, and try to reclaim the equity in their houses for retirement. I’m worried about a collapse in consumer demand due to high taxes required to pay for Social Security. On the other hand, huge deficits usually create inflationary pressure. So who knows?
The classic hedge against inflation is to buy assets. Gold, real estate, etc. But again, if we face inflation or deflation in the future it will be due to forces we haven’t experienced before, so I don’t know if past performance is a good guide.
For myself, my hedge is to work my butt off to eliminate all debt and establish a diversified portfolio of investments, including our house. I think that right now that’s about the best you can do.
Investing is a personal decision based upon every individual’s personal needs, requirements, needs, dreams, wishes, etc. There is no single factual answer to your question.
You should speak with a personal finacial representative who is in the best position to assess your needs and abilities, plot them against current economic policies and trends, and suggest several alternatives for various types of investment strategies.
Since the latest inflation reports show inflation is the lowest in 37 years, the greater immediate concern is deflation. Make your current investment decision based on what you have in front of you right now, and not what you fear may happen years down the road.
I remember all types of doomsayers back in the '60s, then the '70s. Not so much in the '80s or '90s. None of them were right, except for the one about Japan. While most everyone was moaning about the Japanese buying Rockefeller Center and Pebble Beach, some economists were saying that Japan was going to face problems when their workforce started retiring. Sam Stone has good advice about putting your affairs in order.
If you believe in “the coming inflation” (which I don’t though I would argue for "the coming deflation) and are concerned about having money in the future, then borrow it now. 
Thanks, all, for the comments, and thanks, Duckster, for the link.
Regarding that link, it says there that the discount rate is now at the very low level of 1%. If part of the reason for the structure of the Federal Reserve System with its regional banks was to make a more flexible currency by lowering or raising that discount rate depending on whether the economy needed easy credit or not, why hasn’t such a low interest rate spurred businesses to borrow more? Is it that many people are convinced that the potential of making a profit in new enterprises or in expanding production is just not there? What is keeping the “theory” on interest rates, as I have so laymanly presented it, from working?
I don’t see inflation rising to 1970s levels soon on its own. But I feel the real danger is the US is highly overvalued. It seems to be in "bubble mode". If the US bubble bursts, expect some “interesting times” around the whole world. Once all those cheap Chinese goods we are buying go up bigtime in price, and we have no domestic capacity to replace them, then you get serious inflation.
To put this in perspective, you have to remember the Krugman is hyping a new book, although he is a Princeton Economics professor, for the past 10 years he seems to have been much more interested in attacking US political trends than economic trends. (He didn’t like Clinton and absolutely loathes Bush.) He also has a very spotty track record when since he started letting the political tail wag the economic dog.
You should probably put your money where you see the best balance of stability and growth in productivity. At this point (and for quite a few years) US productivity has outstripped all developed countries and most developing countries (which are more erratic). Invest for the long term - US and developing areas like China and other Asian countries. Short term - play off international currency fluctuations or go to Vegas - equally safe.
I also see inflation coming back-but it is at least 10-12 years awy. My scenario:
as soon as the baby boomers start retiring in a big way, the US will face massive deficits(to pay for nursing homes, trescription drugs,etc.) Coincidentally, at about this time, the SocialSecurity trust funds will be rapidly drawn down-perhaps to zero by 2020. Faced with this, the US government will atte,mpt to get out of this by printing money…and the effect will be hyper inflation. Once inflation gets going, it will rise to a pretty goodclip-and wipe out all of the publics savings. The end will be a collapse, and a revalued currency.
So, liquidate your savings and investments, and buy real estate or gold!
If deflation due to population decline is your worry, buy shares in Catholic countries, and for extra security nobble the Pope. (Or invest in the developing world, but that doesn’t sound as exciting.)
The govt. doesn’t really “print money”, per se (well, of course it does, but not like this …). It just spends more than it has, sends a note to the treasury to issue more bonds, makes a note that it now has more money in its accounts, and then writes checks to people based on that new account info.
So, the govt. is already “printing money”. The problem comes when, perhaps someday, no one decides to buy all those bonds the Treasury is issuing, or when the govt, simply issues SO MANY that inflation (already in effect) goes nuts.
When no one decides to buy the bonds, they increase the interest rate to make them more attractive to investors.