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Wednesday summary: The gold/oil ratio suggests a correction; The WSJ opposes QE3; Jenkins advocates breaking up the eurozone.

Nasdaq reports gold passed $1,800 today, while oil hit $82, a 21:1 ratio. This divergence from the historical 15:1 relationship suggests a substantial correction one way or the other. Assuming a dollar upswing, gold would need to fall to near $1,200 to reestablish the normal relationship, reigniting the deflationary concerns emanating from the euro/dollar exchange rate foreseen by supply-side guru Robert Mundell. Fear of a sharp dollar rise may explain the market’s positive response yesterday to Goldman-Sachs’ report that Fed Chairman Bernanke was preparing a third round of quantitative easing. When Reuters clarified this morning that the report was speculation rather than inside information, markets tanked. (On this last point, hat tip to Rush Limbaugh.)

The WSJ opposes QE3 as positive wealth effects likely will be offset by negative income effects due to higher commodity prices.

On The Kudlow Report, David Malpass analyzes the health of banks and the economy:

In The Telegraph (UK), Garry White notes the August 15 anniversary of the Nixon dollar shock.

At TGSN, Kathleen Packard reports on President Nixon’s decision to close the gold window 40-years ago. (Continued here, here and here.)

At an NRO symposium on the debt downgrade, former Kemp staffer John Mueller suggests demographics caused the market to peak a decade ago and that debt and currency issues will be solved by a return to the gold standard.

In The WSJ, Holman Jenkins, Jr. advises Europe’s solvent nations to leave the eurozone.

The euro was a noble idea—actually two noble ideas, one of which made sense: that a common currency might be a force for competitive adjustment across Europe. Alas the noble idea that captivated Europe’s elites and was sold to the man in the street was a different one: The euro would solve “the German problem,” never mind that “the German problem” had already been solved by the invention of nuclear weapons.

Hans-Olaf Henkel, as reputable a German business spokesman as you can find, a former head of IBM Germany, a former leader of his country’s main business federation, once fervently supported the euro but now calls on Germany and its solvent neighbors to exit the euro system in favor of a new currency (a Deutsche mark in all but name).

In The WSJ, former Fed Governor Kevin Warsh and former Gov. Jeb Bush (TX) advocate a new grand strategy focused on long-run growth, but omit currency reform from their analysis.

From First Trust, Brian Wesbury and Robert Stein see reason for optimism on the economy.

At Forbes, CEI’s Wayne Crews argues the logic of Say’s Law refutes Keynesian demand-side analysis.

On Squawk Box, US Rep. Ron Paul (TX) predicts the end of the dollar standard and links currency to violence in England, protests in Israel, and revolutions in the Arab world:

The WSJ suggests hooliganism and weak policing, not commodity prices and economic austerity, caused the British riots.

From Tax Notes, Bruce Bartlett examines revenues lost from the Reagan tax cuts (click the download box).

At Yahoo Finance, Nobel Laureate Joseph Stiglitz promotes more Keynesian spending stimulus:

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