Deflation or Inflation

There's been lots of debate in the media whether we are in a deflationary period or an inflationary one. Both camps seems to have great arguments for their position. But it seems like everyone is missing the big picture. The label is not important, only the result.

Let me explain through my perspective. What we have seen is the Fed inject boat loads of money into the system. Shoring up the coffers of the banks has been their priority in order to save the financial system. The deflationists have pointed out that the banks have not been lending this extra money and therefore there cannot be inflation. Point well taken. On the flip side, the inflationists have argued that the act of printing money itself out of thin air is the very definition of inflation. I'm no academic to be able to argue this.

What I do see is this. The balance sheets of banks have been shored up by the printing of money from the Fed. This money did not exist before - they did a magic trick and pulled a rabbit out of the hat or ass. Unlike you and I, money doesn't just magically appear in our wallets - we actually need to put in a day's labor for it. So this waving of the magic wand generated tons of extra money in the system where there was none before. It is the perception of fiscal responsibility and living within our means as the country with the currency reserve status that is of utmost importance here. When all investors see the way with which we uphold the value of the dollar they quickly lose confidence that there is in fact any value left in the dollar. This is key and in my opinion why the dollar has been tossed by the wayside as everyone has been scrambling to anything they perceive to be a better store of value.

So to argue whether there is deflation or inflation is purely academic. It is besides the point. The fact is that you don't want to be holding all that worthless paper called the dollar or any fiat currency for that matter - not when all governments are running the printing press. Invest in something that will maintain its value through time. Act now before its too late.