Inflation and deflation debate, which side is right?

We have quite often hear people argue the states of economy and inflation and deflation. No one is willing to yield and believes his argument is correct.

In reality, both sides are correct. How, you might ask?

So here is how:

If you are using USD as the measure of the value, we have price inflation.

If you are using gold as the measure of the value, we have price deflation, and terrible one.

People will say, of course, you are a gold bug. But sorry, I am not. All I believe is that the gold's purchasing power is more constent than fiat currency. Using gold/oil as an example, gold typically buys 8-30 barrels of crude oil. It fluctuate in a narrow range. Gold has similar ratio with other commodity, though it somes deviates from it. One can go CRB to find out the details.

Back to the topic:
If one uses USD measure the price tag of most merchandises, the prices have risen consistently in last decades as USD weaken (China has subsidize the inflation that we see Made In China is cheaper, that soon will change). Use a Toyota Camery as an example, 6 years ago, it would cost about $20,000, now it may cost $25,000.

Yet, if one uses gold, then $20,000 will cost about 50 oz of gold, now $25,000 car will cost about 17 oz of gold. So every thing is cheaper, from housing to merchandizes. We actually can claim we are in the deflationary spiral.

FED QE2 is in reality causing deflationary collapse. It just because of people who are paid with USD and hold USD based assets are feeling like they are in inflationary environment while the price level is rising up and up.

But as we shall really use official inflationary definition, we are indeed in monetary inflationary bust and gettting worse every day. Bernanke does not see it. Many economists do not see it.

Ernest Hemingway was a Toronto Newspaper reporter. He once wrote about his experience when he cross the boarder to Germany during Weimar Republic:

He exchanged about 87 Canadian cents to German Marks. He claimed that he and his wife could not spend it in a whole day. He continued his writing:

He bought 15 "rather good looking" apples for XXX Mark (I need to check for the exact number). An elderly man walked over casting a longing look at those apples, He then asked Hemingway how much was the apple cost. Hemingway replied XX Mark. The old man said, it was too expensive for him to buy. Hemingway wrote: each apple cost him only 2 Canadian cents! And yet the elderly man could not even afford it.

That is the work of monetary inflation. That is the work of FED doing to American people. One day, no matter the full employment or not, we will not be able to purchase the same thing as we are enjoying today because the underlying currency is deteriorating and losing its value.

For those who cheers the QE2, if you are not in the core of Wall Street, if you are not in the core of this political system, no matter you are a landlord, an entreprenure, an engineering professional, a financial person, you are not going to benefit from the QEs.

Just be warned what is heading our way: Hyperinflations....