This is why my money is in cash. Yes, there is inflation and yes, the return is low but once earning reports start coming out in after July 1st for Q4 then in October for Q4 I see a Dow around 10,000 and a NASDAQ under 2,000.
However, a nice rebound is possible later next year and I will likely start to go back into the market then.
There has been enormous decline in available credit, because banks won't or can't loan you money except under the best of terms because they have lost huge sums this last year, with more losses not yet accounted for.
This credit collapse, in the trillions, exceeds by one or two orders of magnitude what currency inflation the central banks (such as the Fed, lowering the prime rate or bailing out Bear Stearns) or congress (with their tax rebate) can inject.
What little inflation has been injected has helped weaken the dollar. This weakened dollar, along with the continued accumulating affect of thirty years of no-growth in our domestic energy supplies (oil drilling or nuclear power plants) along with rising energy needs of most nations and the misplaced ethenol mandates have forced up the dollar denominated costs of foods and energy. The enormous deflationary strains being imposed on the economy from the credit collapse are removing our ability to hide these strains in a rising flood of capital.
The huge piles of debt and unfunded mandates (Social Security, Medicare, ...) accumulated by governments and people who took out subprime mortgages and banks who invested in all those financial shenanigans need to be worked through.
There may well be a period of serious inflation, resembling those of the Carter years or worse, but first we will be seeing a period of deflation.
Avoid depending on being able to borrow money anytime the next few years, pay off debt, reduce cash flow needs, and don't invest in companies or governments that will be depending on debt financing.
The dislocations caused by these changes in the economy are causing some highly visible increases in the more essential expendables, such as food and gas, but are causing at the same time substantially larger declines in prices of major items such as houses and investments, and are forcing retailers of non-essential goods out of business or into hard times.
If we really were entering, in the short term, a period of rampant inflation, then I'd recommend piling up the debt, with the expectation of paying it off in cheaper dollars a few years down the road. Don't do that. You will be bankrupt before the inflationary times arrive.