Terrific Op Ed by Warren Buffet in the NY Times. He talks about the invisible tax of inflation, and how Congress and the Fed have chosen that route to finance our economic problems. If you look at my Covestor page, you'll see that I have a huge allocation in precious metals for this same reason (note: precious metals are very volatile and I don't recommend this high of an allocation). Inflation is incredibly tempting to policy makers because the root cause is very difficult to trace back to them and because it's a lagging effect. Inflation takes a while to become a problem, so early on when those policies are enacted, everyone is ok with it. We're in that period right now. But soon, inflation will become a problem. Buffet does a great job of explaining it in his editorial. Here's my favorite quote, but read the whole article.
Legislators will correctly perceive that either raising taxes or cutting expenditures will threaten their re-election. To avoid this fate, they can opt for high rates of inflation, which never require a recorded vote and cannot be attributed to a specific action that any elected official takes. In fact, John Maynard Keynes long ago laid out a road map for political survival amid an economic disaster of just this sort: “By a continuing process of inflation, governments can confiscate, secretly and unobserved, an important part of the wealth of their citizens.... The process engages all the hidden forces of economic law on the side of destruction, and does it in a manner which not one man in a million is able to diagnose.”
