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 subject.
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
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) to do Monte Carlo simulation to see howmuch retirement money you need and what withdrawal rate (typically 3%)you can spend it, and not outlive your retirement money. (T Rowe Pricealso 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).
RL