Inflation -- defined as excess money printing -- feels good to almost everyone in its early stages. Everyone in this new “ownership society” comes to believe they are getting rich by trading stocks and houses with each other. Academic economists eventually develop entire new branches of research dedicated to the idea that saving, investing, and producing no longer matter as long as stock and housing assets can be traded in unencumbered markets (and the multiplier effects of spending capital gains trickle down to the working class through the “service economy”). Continued

Then comes the big surprise when demographic waves reverse the asset inflation tide -- a mass retirement rebalancing process shifts demand toward bonds and smaller abodes. Must a deflationary bust of similar severity and duration correct an irrational boom? According to the Austrian School of economists, the answer is yes, but according to Fed Chairman Ben Bernanke and nearly every other policymaker, the answer is no. The Fed has unlimited power to nip a deflationary spiral in the bud, and it will not hesitate. You can almost sense in the new Fed chairman the desire to don a cape and come to the economy’s rescue against the evil forces of, in his words, “an unwelcome fall in inflation.”

Newly printed money trickles down into physical goods and services -- potentially reaching the flood stage if “inflationary psychology” takes root. The goods and services that had received very little investment during the asset inflation party will be bid up the furthest in price. (Energy and base metals?)

I believe that the widespread recognition of Peak Oil will mark the early stages of a mass exodus out of paper dollars and Treasury bonds. The parabolic move preceding the most recent intermediate-term 2006 peak will be looked back upon as a “mid-cycle slowdown” in the energy bull market. The timing of these occurrences is difficult to nail down, but if the status quo is maintained, it will likely transpire within 4 to 6 years.

How do you make money now? Buy hard assets now on the pull backs such as silver and gold and let the paper money flow.