Warren Buffet says economy has 'fallen off a cliff'

Warren Buffett made a three-hour appearance on CNBC's Squawk Box today -- which the network has liveblogged if you're interested -- where he said that the economy had "fallen off a cliff" and added that the current "close to the worst case" scenario that he could have foreseen. But he also sounded a hopeful note, saying that the economy will be fine in five years.

According to the live blog, Buffett made the point (not a direct quote) that "Inflation has the "potential" of being worse than it was in the 1970s. There are no "free lunches" but there are some lunches you need to have even if you'll pay for it later."

What does it all mean for consumers? Warren Buffett's prediction of high inflation certainly seems reasonable, given the huge amount of cash that Washington is pumping into the economy. If that scenario is going to ensue, the best thing most consumers can do -- other than going crazy and stockpiling canned goods and gold bars -- is to make sure that they own their own homes with fixed-rate mortgages. If inflation soars, your income probably will too and you'll be able to pay off that debt with money that isn't worth what it was when you bought the house. If property values track inflation, you'll do far better than you would have holding cash because of the low-interest leverage.

There's a lot of doom and gloom about the real estate market right now but if we're headed for rapid inflation, it's a much better bet than a savings account.