By Porter Stansberry in the S&A Digest:

There are lots of ways of measuring inflation. The worst way – looking merely at consumer prices (CPI) – is what the government does. The best way is by looking at the size of the Federal Reserve monetary base. This shows you how much money is being created out of thin air.

The monetary base has basically doubled over the last year. But if you throw in all of the various guarantees the Fed is responsible for, the real size of the balance sheet has grown by a factor of 10. (The Fed is now guaranteeing more than $11 trillion of debt.) Folks who believe inflation is only measured by the CPI are about to learn an expensive lesson.

How do I measure inflation? Simple – just watch the price of gold. Gold is the free market's money. The U.S. dollar is the world's reserve currency – the government's money. You can either participate in the government-led economy (by holding dollar-denominated assets) or you can keep your savings in the free market (by holding gold).

Normally, you get paid to participate in the government-led racket – because doing so is risky, governments always default eventually. Meanwhile, gold doesn't pay a cent. Nor does it ever default.

So I believe the best way to figure out the real rate of interest on U.S. dollars is simply by measuring the change in the price of gold compared to the interest paid on U.S. Treasury notes, bills, and bonds.

For example, this year, the price of gold is up roughly 20%. Meanwhile, a 10-year T-bond is paying roughly 3.5%. By lending the U.S. government money for 10 years, you would have lost roughly 16.5% of the intrinsic value (the purchasing power) of your savings. Not a very good deal.

The key question for stock market investors these days is: What really happens to stock prices during a period of negative real interest rates? It isn't pretty, my friends. Stocks generally trade at earnings multiples under 10 during periods of negative real interest rates. That's the bad news. The good news, though, is some companies do particularly well during periods of inflation and negative real interest rates.

Crux note: Learn Porter's favorite "inflation stocks" – and his favorite way to make a fortune during an inflationary boom – with a subscription to Porter Stansberry's Investment Advisory. You can learn more about the letter here.

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Stansberry: GE stock is worth nothing

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Stansberry's follow up to the Detroit socialist disaster piece