With housing rolling over, unemployment still uncomfortably high and the CPI down three straight months, the specter of deflation hovered over Ben Bernanke's semi-annual testimony to Congress this week.

Walking a thin line, Bernanke took pains both to downplay the deflation threat -- "I don't view deflation as a near-term risk to the United States," he said -- and to assure markets that "the Federal Reserve does have the capacity -- the tools -- should deflation occur, to reverse it."

Bernanke's comments didn't settle the deflation debate, nor did they do anything to convince Euro Pacific Capital's Peter Schiff that the Fed chairman knows what the hell is going on.

"I don't know where anyone thinks prices are falling," Schiff says, citing rising prices for food, healthcare and energy. "I don't know where most people do their shopping but I don't see falling prices. To me, prices are rising."

While the Fed is (privately at least) patting itself on the back for (hopeully) preventing a Japanese-style deflationary spiral from taking root, Schiff gives them no credit whatsoever. (See: Peter Schiff's Policy Rx: Bernanke and Uncle Sam Should Do LESS, Not More)

Despite the worst recession since the Great Depression, deflation is non-existent "because the government created so much inflation they prevented prices from falling," he says. "It would have been a relief for a lot of Americans...if things cost less [and] the cost of living was falling in line with a weaker economy."

The idea deflation would be a "good thing" certainly puts Schiff at odds with most mainstream economists. Then again, that's where he's most comfortable.

And given his view the dollar is a "bottomless pit," it's not surprising Schiff believes inflation is a much greater threat than deflation.

"The real evidence of inflation is that the Fed is creating too much money," he says. "Interest rates are at zero, the Fed's balance sheet ballooned and now they're talking about cranking up the purchases [of mortgage-backed securities and agency debt] again. That's more monetization -- more money printing. That is the very definition of inflation."

As a result, Schiff believes Americans are soon going to be paying more - much more - for food, clothing, energy, healthcare and even consumer electronics. But prices of financial assets and real estate? They're not going anywhere but down in real (i.e. inflation-adjusted) terms, according to Schiff.