Rick Rule – Fed Bailout of Europe Sends Gold Soaring

With news of the Fed bailing out the European banking system, today King World News interviewed one of the most street smart pros in the resource sector, Rick Rule, Founder of Global Resource Investments, which is now part of the $10 billion strong Sprott Asset Management. Rule had this to say about the situation, “Pretty amazing isn’t it? We’ve decided as American taxpayers that we don’t want to merely bail out brain dead American bankers, but we want to bail out brain dead European bankers too. Strange day, particularly from the point of view of a US dollar holder and a taxpayer.”“It makes near-term sense that the dollar would trade lower. It means that the European banks that have to roll over their US funding requirements won’t have to sell euros to buy dollars. They will be able to borrow discounted dollars. And it probably takes pressure off the euro in the sense that it gives the European banks more rope with which to hang themselves.

I keep harkening back, but I think it’s important, to telling your listeners that to increase the encumbrances on an over leveraged institution doesn’t help the institution long-term. It kicks the can down the road.

To use the example of the sovereign debtor Greece, the idea that somehow you improve the Greek situation by taking a country that can’t service the debts at 150% of GDP, and increasing their debts to 170% of GDP, it doesn’t seem to help.

And similarly, at least from my point of view, to the extent that Deutsche Bank, as an example, has too many short-maturing obligations in US dollars, the idea that you increase that level of obligation doesn’t appear to me to be helpful in the long-term.

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