Thanks for the replies; a great thread and I look forward to any other
insights from you guys, who seem to know a lot more than I do on this
For the record, a book that predicts an inflation tax is "The Coming
Generational Storm" by Laurence J. Kotlikoff and Scott Burns (2004).
Burns was the Dallas Morning News financial guy and Kotlikoff is a
Republican policy wonk and professor who had developed a program (see
http://www.esplanner.com/ ) to do Monte Carlo simulation to see how
much retirement money you need and what withdrawal rate (typically 3%)
you can spend it, and not outlive your retirement money. (T Rowe Price
also has an online version, but not as detailed.
Kotlikoff predicts the inflation tax soon, as Boomers retire, since
already the indirect costs of Social Security and Medicare (SS&M) (and
other federal obligations) is something like over $150000 per person.
He also points out that 66% of Americans, now and in the future, will
depend on SS&M for over 50% of their retirement. And having worked on
the hill he doubts SS&M reform is politically feasible. According to
Kotlikoff, though the details were vague, waiting until later to fix
SS&M is not feasible since the interest payments will begin to grow
exponentially. (I am following up reading another book now, taking the
opposite argument--that the aging population is not a problem--called
Aging Nation: The Economics and Politics of Growing Older in America
By: James H. Schulz, Robert H. Binstock)
K&B's proposed solution is to buy unhedged foreign bond funds (a play
on shorting the dollar), mentioning BEGBX and RBIBX, to buy a energy
fund (XLE, IYE, IGE, IXC or VGENX), to buy gold mining stocks or mutual
funds (FSAGX, BGEIX, VGPMX), to buy an international stock fund
(VGTSX), to punt on China (he could not find a decent China index fund
as of 2004 when the book is written--I agree, and note, like Jeremy
Siegal has said, sometimes the hottest stock/region is the worst
performing--I doubt China stocks will really fly, unlike the country
China--but as a last resort mentions the China fund FHXCX and CHN), and
to invest in keeping old people alive with pharma (VGHCX).