As everyone knows, the economy has been in a mess since the collapse of the Dot Com. I live in the South San Francisco Bay Area (the epicenter of the Dot Com). Until recently, things were really bad here. However I have good news: It seems the economy is finally pulling out of this recession. I have neighbors who were unemployed for over a year. After almost zeroing out their 401-Ks, these "lucky" people are now finding jobs. Also there's new construction starting all around where I live. So it appears we are about to start on a new economic cycle. Now I ask myself: How long is this next cycle going to last and what will be the characteristics of the next recession?

I keep reading about America's debt crisis. We all know about the seriousness of the federal budget deficit and long term debt. There is also the issue of our international trade imbalance which seems to be handing America's equity over to foreign manufacturers and investors. California's state budget is in a serious mess. Arnold is talking about floating a new state bond issue (more debt) to cover California's current debt crisis. There is also the crisis of private indebtedness including abuse of home refinancing to pay off credit card debt. Warren Buffet made recent public comments to the effect that America represented a poor investment opportunity. Buffet said that he was going to invest in foreign currencies but remained silent about which currencies he thought were good opportunities (I can't imagine the Yen or ECU really representing a great investment opportunity). Real estate seems to be very over priced and getting more expensive. There has been a fair amount of concern about the future collapse of Medicare and Social Security due to the demographics of the Baby Boom. Finally, despite our current rate of inflation being almost zero, Greenspan seems to be very concerned about the risk of future inflation. This takes me to the punch line: I think we're being setup for a major increase in inflation. When I say major, Ithink within 6 to 8 years the rate of inflation maybe 25% or greater. There seems to be too many people in the United States who would significantly benefit from major inflation. For example:

The U.S. government could payoff its enormous debt by simply printing more money thus inflating the currency (a very old trick commonly used by the Roman Empire).

Foreign investors would be paid back in inflated dollars worth far less than the original goods and services they provided thus cheating them.

Social Security and Medicare could be "fixed" by simply legislating that payments be made in constant dollars without regard to inflation, i.e. a bottle of asprin costs $200 at the store but Medicare only covers 50 cents.

Overvalued real estate could be readjusted to "fair value" by allowing home prices to increase at a rate much slower than inflation.

It is my opinion that "inflation is theft". The inflation scenario that I've just described could end America's prosperity and status as an economic Super Power (we might retain that status through everyone else managing their finances as badly or worse as we have).

Given that there is no inflation now but assuming that hyperinflation might be near term, how should one invest his money? For example: Is it really wise to pay off one's mortgage given that home valuations in inflation adjusted dollars may drop by an order of magnitude? What's a safe haven to park one's money into? Can banks be trusted? Obvious places that are NOT safe are European and Japanese curriences. Is gold a wise investment (gold is currently dropping after a long period of appreciation)? Would hyperinflation clobber the stock market? This line-of-enquiry raises lots of questions.

Gary