Today Warren Buffett came out with his take on the economy:

“”The U.S. economy had fallen off a cliff”,  but he went on to say it will “eventually recover, although a rebound could kindle inflation worse than that experienced in the late 1970s.””

“”The economy was mere hours away from collapse last September when credit markets seized up, Lehman Brothers Holdings Inc went bankrupt and insurer American International Group Inc got its first bailout. “The world almost did come to a stop,” he said.

On CNBC today, Buffett said the country still faces an “economic Pearl Harbor,” experiencing a “close to the worst-case” scenario of falling business activity and rising unemployment.

On the recovery Buffett said that while the economy “can’t turn around on a dime,” he believes that “five years from now, I can guarantee you that the machine will be running fine.”

He added, “We do have the greatest economic machine that man has ever created.”

But he said an economic rebound could trigger higher inflation once demand rebounds. “In economics there is no free lunch,” he said. “We are going to attempt to have a lunch that to some extent we’re going to pay for later.”

With all the bailout money being spent, and the record increased proposed federal budget, it doesn’t take someone of Mr Buffett’ experience to see huge inflation coming on the horizon.

At this point over the next couple of years, I  would advise to lock in any mortgages you have that are currently adjustable.  Once inflation starts rolling and if Buffett is correct and inflation rates equal or exceed 1970’s rates, your mortgage could adjust easily to over 10% making your home unaffordable.

You should also consider not locking up your money in t-bills long term, as once inflation comes back so will interest rates, although I think we are at least a year away from this starting and possibly several years away.