GoldEurope is burning. Greece is gone, it is just a matter of time, and Spain just told the world no one is willing to lend it money, help! The headlines about the fiscal cliff facing the U.S. are getting closer and closer to Page 1, with former President Bill Clinton kicking the current president in the butt and saying all the Bush tax cuts should be extended, at least temporarily.

What to do? Ah, generate some income so you can visit Greece after they leave the euro. It will be really cheap. You have two choices — do it based on stocks, or do it based on the market and fear and headlines to come. Right now the income crowd is crowding into high-yield stocks. Stay away. Instead, get your income from the market itself.

Say what?

When the market gets volatile, when fear hits, the VIX, the measure of market volatility, goes up. I wrote about that a bit last week – you can buy S&P 500 VIX Short-Term Futures ETN (VXX), the ETF for the VIX, or sell puts against it.

But there’s something now on the table that is a surrogate for generating income from the market: gold. Gold has found a bottom, gold has found new buyers, the gold miners are finally catching up in value to the movement in gold. The stars are in alignment, thanks to financially illiterate politicians.

The strategy for income

Yes, I spoke about income. The ETF for gold, the SPDR Gold Shares (GLD), does not have a dividend. Neither does the ETF for the gold miners, the Market Vectors Gold Miners ETF (GDX). Individual miners, such as Newmont Mining (NEM) or Barrick Gold (ABX), have small dividends, might or might not pay for a subscription to one of my services. Here is what to do: Either write puts against them – every week or every month or every three months or whatever – or buy them and write calls. The latter strategy produces higher returns if the underlying names appreciate; the former strategy gives you a bit more flexibility with your capital. The returns can be very large if you work these positions, 18% to 24% a year with little capital risk.

I am not a gold bug – the inflation mongers who scream amount the Fed doing this and the Treasury doing that are the equivalent of a television repairman using vacuum tubes to fix an LCD. The world is suffering from massive asset deflation. No matter. The inflation folks buy gold when they get scared and they are getting scared. Ditto for the currency debasement crowd. “You are debasing the currency.” Sorry, when the major currencies are all debased at the same time — the dollar, the euro, the yen and the pound — there is no debasement that matters for developed nations. But these people do get scared about currency debasement and buy gold. And the last piece is oil – oil has been a hedge against the dollar and the euro. No more. Oil prices are falling due to a stalling in worldwide demand and the rapid rise of supply. And when this crowd trims its hedges based on oil, yup, you guessed it, that crowd buys gold.

There is one more benefit of learning how to generate income from gold. Even if the financial illiterates in Europe fix this or that temporarily, we can always rely on our home-grown bunch to create the same market havoc on this side of the pond. The U.S. is on a course that will bring a lame duck Congress back in session after a contentious election, in the middle of a recession, mind you. The Tea Party will continue its Rumpelstiltskin impersonation (look it up on Wikipedia if your parents were remiss and did not read it to you). The Democrats will continue to insist that middle-class people are actually rich and so on. And if the Bush tax cuts are not extended, and sequestration takes place and there are abrupt, indiscriminate budget cuts and the payroll tax cut is not extended and so on, the fall in GDP could easily be more than 2%. This will deepen the recession. But if you get used to generating income from Europe during their crisis, you get a benefit – you get to do it all over again when the U.S. has its crisis in December. Same tactics, same names.