Exposing the Global Warming Fraud

This week President Obama announced a far-reaching plan to require reduction in carbon dioxide emissions from power plants, mandate increased vehicle mileage, and authorize more subsidies for solar and wind power. He plans to make an end run around Congress on these issues by using executive orders. He said science has put to rest the debate over global warming, and he derisively likened those who disagree on this to a Flat Earth Society. But it is Obama and the other global warming alarmists who, like “flat earthers,” are in denial of reality. The doctrine of human-caused global warming, via carbon dioxide emissions, has already been thoroughly discredited by science. Denying the science or falsifying it cannot change the truth, but that is what has been done for political reasons.

Last month, in a disclosure that drew wide publicity and ominous warnings, it was announced that atmospheric carbon dioxide measurements had reached 400 parts per million and that this was the highest in 3 million years. But as we pointed out in a previous posting (which includes important graphs), there is abundant evidence that this is not true. Between the years 1812 and 1961, there were 90,000(!) measurements of atmospheric carbon dioxide published in 175 technical papers. These show five-year averages of 440 ppm CO₂ in 1820 and 1940. Professor Jaworowski says these measurements were ignored “not because they were wrong. Indeed, these measurements were made by top scientists, including two Nobel Prize winners, using techniques that are standard textbook procedures....The only reason for rejection was that these measurements did not fit the hypothesis of anthropogenic global warming. I regard this as perhaps the greatest scientific scandal of our time.”

Zbigniew Jaworowski, M.D., Ph.D., D.Sc., was a mountaineer as well as a scientist, studied climate for 50 years and dug into glaciers on 17 research expeditions—11 organized by him—in the Arctic, Antarctic, Alps, Norway, Himalayas, Peruvian Andes, and other mountainous regions. He published many scientific papers, mostly on ice cores. Ice core measurements show carbon dioxide content of over 400 ppm in 1700 A.D. and 200 A.D. as well as 10,000 years ago. Yet the Intergovernmental Panel on Climate Change (IPCC) Fourth Assessment Report (AR4) stated: “The atmospheric concentration of carbon dioxide in 2005 exceeds by far the natural range over the last 650,000 years (180 to 300 ppm)[!] as determined from ice cores [emphasis added].”

Jaworowski stated that the IPCC AR4 Summary Report was “plagued with improper manipulation of data,” and that this corruption to try to justify the global warming hypothesis extends far beyond the IPCC. Here is an example:

Here's another example, this one from Jaworowski's paper CO₂: the Greatest Scientific Scandal of Our Time: (Click anywhere on the graph to enlarge it to make the caption more readable.)

In another paper, under the heading “How Selection of Ice Core Data Skews Results to Match the Global Warming Theory,” Jaworowski wrote,

In presenting measurements of CO₂ concentrations in the pre-industrial ice core from Byrd Antarctica, Neftel, et al., in 1982 showed maximum values of up to 500 ppmv. In 1988, the same authors published measurements for the same section of the Byrd ice core, but left off the high readings previously published, reporting a high of 290 ppmv, in agreement with the global warming theory.

Under the heading “Fudging the Data,” Jaworowski wrote:

Until 1985, the published CO₂ readings from air bubbles in pre-industrial ice ranged from 160 to about 700 ppmv, and occasionally even up to 2,450 ppmv. After 1985, the high readings disappeared from the publications! To fit such a wide range of results to the anthropogenic climatic warming theory, which was based on low pre-industrial CO₂ levels, three methods were used: (1) rejection of high readings from sets of pre-industrial samples, based on the credo: “The lowest CO₂ values represent the best CO₂ concentrations in the originally trapped ice”, (2) rejection of low readings from 20^th century samples; and (3) interpretation of the high readings from pre-industrial samples as representing the contemporary atmosphere rather than the pre-industrial one.

Pearman, et al. “on examination of the data,” rejected 43 percent of the CO₂ readings from Law Dome, Antarctica core, 39 percent of the CH₄ [methane] readings, and 43 percent of the N₂O [nitrous oxide] readings, because they were higher or lower than the assumed “correct”' values.

Leuenberger and Siegenthaler claimed that their data from a Greenland ice core demonstrate that the present level of N₂O in the atmosphere, 310 ppmv, is an effect of a recent 19 percent increase caused by industrial activity. To reach this conclusion, they rejected 27 percent of the samples with N₂O readings deemed to be “too high” for pre-industrial ice.

Etheridge et al. claimed that their ice core results show a pre-industrial N₂O concentration of 285 ppbv. This value was calculated after rejection of 44 percent of their measurements! From the remaining analyses, the high readings from the 16^th and 17^th century ice, ...which were higher than 20^th century samples,...were again eliminated without explanation.

The inappropriate manipulation of data in research studies is not the only way of fraudulently promoting anthropogenic global warming. The locations of temperature stations as well as the data they report have been altered to create an artificial historical trend depicting global warming. A stunning 106-page report by two veteran meteorologist, Joseph D'Aleo and Anthony Watts, documents that the global temperature record that used to be based on 6,000 reporting stations now is based on fewer than 1,500. Beginning about 1990, higher-altitude, higher-latitude, and rural stations were removed from the network in order to create a false warming trend. In many cases the stations are still reporting, but their data are no longer utilized. Often the stations have been replaced by others more likely to show warming from lower elevations, lower latitudes, or urban development, which reflects the well-known “heat island” effect of cities. The authors assert that data has been “so widely, systematically, and unidirectionally tampered with that it cannot be credibly asserted there has been any significant 'global warming' in the 20th century.”

Russia and Canada are the two largest countries in the world. Russia alone accounts for 11.5 percent of the globe's land surface area. Surely the climate there must be important to an accurate calculation of a global climate trend, but Watts and D'Aleo state:

In the cold countries of Russia and Canada, the rural stations in the Polar Regions were thinned out leaving behind the lower latitude more urban stations. The data from the remaining cities were used to estimate the temperatures to the north. As a result the computed new averages were higher than the averages when the cold stations were part of the monthly/yearly assessment.

In Canada, the number of stations dropped from 600 to less than 50. The percentage of stations in the lower elevations (below 300 feet) tripled and those at the higher elevations above 3,000 feet were reduced by half. [The] depicted warmth comes from interpolating from more southerly locations to fill northerly vacant grid boxes, even as a simple average of the available stations shows an apparent cooling.

The IEA [Moscow-based Institute of Economic Analysis] believes the Russian meteorological station data did not substantiate the anthropogenic global-warming theory. Analysts say Russian meteorological stations cover most of the country's territory and that the Hadley Center had used data submitted by only 25 percent of such stations in its reports. The Russian station count dropped from 476 to 121 so over 40 percent of Russian territory was not included in global temperature calculations for some other reasons than the lack of meteorological stations and observations.

The Russians found that the 121 sites used gave mostly warmer reports than the 355 unused sites. In some cases stations records going back into the 19th Century were ignored in favor of stations with less data but which pointed to warming. The IEA team stated, “Only one tenth of meteorological sites with complete temperature series are used.” It illustrates with this example:

Weather station Uchur has a long and almost continuous series of meteorological observations from 1940; the station Toko—an intermittent series of observations from 1946 and continuous only since 1957; however, the trend towards warming in the 20th Century was more pronounced according to station Toko. In the calculations of global temperature, HadCRUT predictably uses the data solely from the station Toko.

Russia and Canada are not exceptions. The same thing was happening all over the globe. Throughout South America the higher elevation stations disappeared, while the number of coastal stations increased. In Europe higher mountain stations were dropped and thermometers were marched toward the Mediterranean, lower elevations, and more cities; the station dropout was almost 65 percent for Europe as a whole and 50 percent for the Nordic countries. Africa is not showing warming despite efforts to make it appear so by eliminating thermometers from cool areas like the Moroccan coast and moving them toward the Sahara. As recently as 1988, over 400 stations in China were utilized in the reporting network. In 1990, only 35.

 

The raw temperature data show no trend in temperatures in Northern Australia in 125 years. The IPCC, however, uses “adjusted” data. NOAA makes data “adjustments” to remove “inhomogeneities” and for other reasons. The D'Aleo and Watts report says: “We have five different records covering Darwin from 1941 on. They all agree almost exactly. Why adjust them at all? NOAA added a huge, artificial, imaginary trend to the most recent half of the raw data.” The raw temperatures in Darwin were falling at 0.7 C. per century. After the NOAA adjustment, the temperatures were rising 1.2 C per century.

In New Zealand, temperatures have been remarkably stable for a century and a half, though the IPCC and others allege warming has been occurring for over 100 years. But New Zealand itself made adjustments to the NOAA climate data. D'Aleo and Watts say, “The shocking truth is that the oldest readings have been cranked way down and later readings artificially lifted to give a false impression of warming....There is nothing in the station histories to warrant these adjustments.”

In the United States, most of the remaining stations are at airports or at other locations unlikely to yield representative results, and most of the higher elevation stations in the West are gone. The only remaining stations in California are in San Francisco, Santa Maria, Los Angeles and San Diego.

There are two weather organizations that provide satellite data and three that publish surface data. Those three are the National Oceanic and Atmospheric Administration (NOAA)'s National Climate Data Center (NCDC), NASA's Goddard Institute for Space Studies (GISS), and the University of East Anglia's Climate Research Unit—and all three depend on data supplied by ground stations via NOAA!

The EPA statement in the Federal Register December 9, 2009, “Warming of the climate system is unequivocal” was followed by “The global surface temperature record relies on three major global temperature data sets, developed by NOAA, NASA, and the United Kingdom's Hadley Center. All three show an unambiguous warming trend over the last 100 years.” The EPA intent obviously was to try to downplay the effect of any Hadley/CRU data manipulations (after the “climategate” scandal of damaging emails was disclosed) by showing the end result was validated by the other two agencies. But since the three agencies all depend on the same NOAA data, their unambiguous agreement demonstrates not validity but their common corruption.

For seventeen years now there has been no global warming—even from the current reduced network of reporting stations—but carbon dioxide emissions have continued to soar. This certainly casts doubt on the assertions that higher levels of CO₂ cause global warming. At the same time, the evidence has become overwhelming that changes in the earth's temperature are determined by the sun, making the dogma that CO₂ causes global warming as obsolete as arguments that the earth is flat. Figure 3 shows the close correlation between the earth's temperature and the sun's magnetic cycle, which is a proxy for its variations in brightness (irradiance). The shorter the magnetic cycle length, the more active, and hence brighter, the sun. Cosmic rays have an even even stronger correlation than irradiance, but I do not have a graph to show this.

                                                  Figure 3

While orbital changes produce long-term climate cycles by varying the distance of the earth from the sun, shorter term cycles are determined by changes in the surface of the sun itself. The sun's radiation is varied by disturbances on the surface of the sun, called “sunspot cycles.” Magnetic fields rip through the sun's surface, producing holes in the sun's corona, solar flares, coronal mass ejections, and changes in the “solar wind,” the stream of charged particles emanating from the sun. The solar wind, by modulating the galactic cosmic rays which reach the earth, determines both the formation of clouds and the carbon dioxide level in the earth's atmosphere. Sunspot cycles cause only slight changes in the sun's radiation, but these changes are amplified many fold by interaction 1) with ozone in the upper stratosphere, and 2) with clouds in the lower troposphere. Clouds have a hundred times greater impact on climate and temperature than CO_2.

“Cosmic radiation comes to the earth from the depths of the universe, ionizing atoms and molecules in the troposphere, and thus enabling cloud formation. When the sun's activity is stronger, the solar magnetic field drives a part of cosmic radiation away from the earth, fewer clouds are formed in the troposphere, and the earth becomes warmer,” wrote N.D. Marsh and H. Svensmark, pioneers in this issue. The process was explained with eloquent simplicity by Theodore Landsheidt of Canada's Schroeder Institute: “When the solar wind is strong and cosmic rays are weak, the global cloud cover shrinks. It expands when cosmic rays are strong because the solar wind is weak. This effect [is] attributed to cloud seeding by ionized secondary particles.” Or, as Jaworowski put it more poetically, “The sun opens and closes a climate-controlling umbrella of clouds over our heads.”

The sun also sets the carbon dioxide level in the earth's atmosphere by the same process. Nigel Calder explains: “The sun sets the level of carbon dioxide in the earth's atmosphere by the cumulative effect of variations in the galactic cosmic rays reaching the earth, as modulated by the solar wind. My results leave no room for CO₂ levels due to man-made CO₂....nothing to do with emissions from factories or cars (emphasis added.)"

Perhaps we should not be surprised that the global warming alarmists still cling to their CO₂/global warming dogma in the face of the contrary evidence: 17 years of no global warming despite a soaring increase in CO₂ emissions. There was ample evidence before this that their dogma is incorrect, but they ignored it.

For example, all of the computer modeling of global warming assumes—for sound theoretical reasons—that warming from a greenhouse effect must be 2-3 times greater in the lower atmosphere than at the earth's surface. This is not happening. Both satellites and weather balloons show slightly greater warming at the surface. These atmospheric temperature measurements furnish direct, unequivocal evidence that whatever warming has occurred is not due to the greenhouse effect. Still, the greenhouse proponents cling to their dogma.

According to the greenhouse hypothesis, the warming should occur equally during day and night. But most of the warming that has been observed has occurred at night, thus falsifying the models. The greenhouse believers are undisturbed by this.

Since carbon dioxide is a very weak greenhouse gas, computer models predicting environmental catastrophe depend on the small amount of warming from carbon dioxide being amplified by increased evaporation of water. But in the many documented periods of higher carbon dioxide, even during much warmer climate periods, that never happened. During the time of the dinosaurs, the carbon dioxide levels were 300 to 500% greater than today. Five hundred million years ago, the level of carbon dioxide in the atmosphere was 15 to 20 times what it is today. Yet the catastrophic water-vapor amplification of carbon dioxide warming never occurred. Today we're told catastrophic warming will result if carbon dioxide doubles. But during the Ordovician Period, the carbon dioxide level was 12 times what it is today, and the earth was in an Ice Age. That's exactly opposite to the “runaway” warming that computer models predict should occur. Clearly the models are wrong; they depend upon an assumption of amplification that is contrary to the climate record of millions of years. Still, the greenhouse proponents cling to their dogma. The facts don't matter.

Hidden in the scare-tactic claims of "runaway" global warming from increasing CO₂ is the fact that its effect is logarithmic. That means each increase produces less effect than the previous one. David M. Hoffer offers this very useful explanation: “Consider that you have several pairs of sunglasses, each of which block 50% of the light. If you put two pairs in a row, do they block 100%? Of course not. The first pair blocks 50% and the second pair blocks 50% of what is left, which is 25% of the original light. The third pair would block only 12.5% of the original light. CO₂ suffers from the same law of diminishing returns.” But the True Believers still warn of a coming danger of runaway global warming from increasing CO_2.

Why is it that the global warming advocates are unfazed by any contrary evidence, no matter how strong? All their claims of disasters and “tipping points” have been debunked. All their computer models have been shown to be false, to be based on flawed assumptions, incapable of being reconciled with observable facts. Vaclav Klaus, former president of the Czech Republic and a university professor before he became president, is the author of a book on global warming and has spoken often on the subject. He says, “What frustrates me is the feeling that everything has already been said and published, that all rational argument has been used, yet it does not help.” It does not help because global warming alarmism is not based on rational argument. It is not based on science. It is not based on reality. It is based on political ideology. If rational argument doesn't fit, then phony arguments must be invented: the spread of malaria, the loss of biological diversity, polar bears disappearing, etc. If computer models can predict disaster scenarios only by programming unrealistic assumptions, then that will be done. If global warming does not fit the observable temperature measurements, then a new “reality” must be invented to fit the ideology: the actual temperature records must be altered or excised. Ditto for carbon dioxide measurements. The global warming advocates are not disturbed by all this because, in their view, ideology trumps reality!

Patrick Moore, a co-founder and director of Greenpeace, resigned because of its “trend toward abandoning scientific objectivity in favor of political agendas.” After the failure of communism, he says, there was little public support for collectivist ideology. In his view, a “reason environmental extremism emerged was because world communism failed, the [Berlin] wall came down, and a lot of peaceniks and political activists moved into the environmental movement bringing their neo-Marxism with them and learned to use green language in a very clever way to cloak agendas that actually have more to do with anti-capitalism and anti-globalism than they do anything with ecology or science.”

“I think if we don't overthrow capitalism, we don't have a chance of saving the world ecologically,” said Judi Bari, principal organizer of Earth First!

James Hansen—the man who started global warming alarmism with his Senate testimony in 1988—revealed his hatred of capitalism in an impassioned email denouncing the attention paid to errors in NASA temperature data. He said attention to those errors “has a clear purpose: to confuse the public about the status of knowledge of global climate change, thus delaying effective action to mitigate climate change. The danger is that delay will cause tipping points to be passed, such that large climate impacts become inevitable...[T]he ones who will live in infamy if we pass the tipping points, are the captains of industry, CEOs in fossil fuel companies such as EXXON/Mobil, automobile manufacturers, utilities, all of the leaders who have placed short-term profit above the fate of the planet and the well-being of our children.” On June 23, 2008, exactly twenty years to the day from his Senate testimony that he was 99% sure greenhouse warming was already underway, Hansen appeared before the House Select Committee on Energy Independence and Global Warming. There he conjured up images of the Nuremberg trials of Nazi war criminals by claiming the CEOs of fossil fuel energy companies “should be tried for high crimes against humanity and nature.”

Klaus states:

We succeeded in getting rid of communism, but along with many others, we erroneously assumed that attempts to suppress freedom, and to centrally organize, mastermind, and control society and the economy, were matters of the past, an almost-forgotten relic. Unfortunately, those centralizing urges are still with us.... Environmentalism only pretends to deal with environmental protection. Behind their people and nature friendly terminology, the adherents of environmentalism make ambitious attempts to radically reorganize and change the world, human society, our behavior and our values....

The followers of the environmentalist ideology, however, keep presenting us with various catastrophic scenarios with the intention of persuading us to implement their ideas. That is not only unfair but also extremely dangerous. Even more dangerous, in my view, is the quasi-scientific guise that their oft-refuted forecasts have taken on....Their recommendations would take us back to an era of statism and restricted freedom....The ideology will be different. Its essence will, nevertheless, be identical—the attractive, pathetic, at first sight noble idea that transcends the individual in the name of the common good, and the enormous self-confidence on the side of the proponents about their right to sacrifice the man and his freedom in order to make this idea reality.... We have to restart the discussion about the very nature of government and about the relationship between the individual and society....It is not about climatology. It is about freedom.

Gold Prices, Monetary Policies, and Outlook

The World Gold Council on May 16 issued it summary report for the first quarter of 2013. Central banks added 109.2 metric tons of gold to their reserves, the ninth consecutive quarter of net purchases. Note that these purchases occurred before the big drop in the gold price in mid April. I would expect the second quarter report will show much larger purchases by the central banks, due to bargain prices that became available.

First quarter investments in gold ETFs were down 177 tons—but bar and coin demand increased by 378 tons. (Three-fourths of the ETF losses occurred in the U.S.) Jewelry demand accounted for 551 tons, an increase of 12 percent. Supply was flat: mine production increased 4%, but recycling decreased by the same amount.

India and China both showed big increases in buying during the quarter. India bought 256t, for a 27% increase; jewelry was up 15%, and investment was up 52%. In China, overall gold demand was up 20% with jewelry up 19%, and investment up 22%.

The precipitous $200 drop in the gold price in April was triggered by a single very large sell order in the futures market on the Comex exchange. Despite claims by some that this signaled the end of the bull market in gold, price action said otherwise. Physical buyers turned out in droves. The US Mint sold a record 63,500 ounces—a whopping 2 tonnes—of gold on April 17 alone. It's total for the month was more than the two previous months combined.

Reuters reported: “on Tuesday [following the big price drop], buyers outnumbered sellers by a wide margin. At Ginza Tanaka, the headquarters shop of Tanaka Holdings, gold buyers waited for as long as three hours for a chance to complete a transaction.”

Bullion traders reported trading volumes doubled and the buy/sell ratio was 95 to 1. Two precious metals refiners—who deal only in large trades—said they had no sell orders; a third said they had one sell order out of 100 transactions. The World Gold Council reports central bank buying shows no signs of abating.

Demand for gold in India, the biggest consumer, was double the level for this time of year, said Rajesh Mehta, chairman of Bangalore-based Rajesh Exports Ltd (RJEX)., the nation's largest exporter of gold jewelry and a retailer. UBS AG said on April 23 that physical-gold flows to India approached the highest since 2008. India's Ministry of Commerce and Industry reported gold bullion imports rose 138% in April from March.

Japanese individual investors doubled gold purchases yesterday [April 17] at Tokuriki Honten, the country’s second-largest retailer of the precious metal. In Australia, “the volume of business… is way in excess of double what we did last week,… there’s been people running through the gate,” said Nigel Moffatt, treasurer of Australia’s Perth Mint.

A jewelry salesman in Mumbai’s Zavery Bazar was quoted in the Wall Street Journal: “We have not seen such strong demand in many years. Our order books are already 30%-40% more than last year’s festival day… We don’t have enough staff to keep up with this kind of mad demand.”

In the weeks since the April drop, there has been strong demand for jewelry and investment in China, India, and the Middle East. Coin purchases have increased in Western markets, and some refineries are reporting 2-week waiting periods for delivery of their products.

MONETARY POLICY

In a previous posting we pointed out “quantitative easing”—printing money—has been employed by the Fed, the European Central Bank, the Bank of England and the central bank of Japan in efforts to stimulate national economies. The economy of Japan has stagnated for two decades—because of Keynesian policies—and has reached the point where deflation is now more feared than inflation. Japan's monetary policy had been aimed at creating inflation of one percent. The recently elected government in Japan has stated it aims to improve the economy with 2 percent inflation by doubling the money supply. It said it will engage in “unlimited” or “open ended” printing of money to achieve that goal. Thus Japan has now reached its “Havenstein moment,” a moment already reached by the other three central banks just mentioned. It is a moment when the person in charge of the money supply decides that massive printing of money is better than the alternative. Rudolf Havenstein was the head of German Central Bank (Reichsbank) from 1908 to 1923 and presided over the great hyperinflation in Germany.

Obviously fearing the alternative would be worse, the Fed is currently printing $85 billion per month—that's over a $1 trillion per year—to try to improve the economy. And it has more than trebled its balance sheet from $924 billion on Sept. 10, 2008 to $3.32 trillion now. After 4 and 1/2 years of quantitative easing, the U.S. economy is still weak, unemployment high and labor-force participation actually down.

European Central Bank president Mario Draghi has provided euros amounting to $1.3 trillion to European banks and says he will do “whatever it takes” in the way of future printing of money to save the euro. But the euro-zone economy is still in trouble. The Bank of England has engaged in quantitative easing amounting to $593 billion, with disappointing results. Is it likely that larger doses of the Keynesianism that failed to produce economic growth in Japan for two decades will now produce a different result?

Hunter Lewis, author of Where Keynes Went Wrong, said in a 2011 interview,

Back in 2009 when we were coming out of the crash, in the first interview I had about the book with the BBC, they said, “Are you proposing to take the patient off life support?”' And I said, “That’s the wrong way to look at it. It’s not life support, it’s just more alcohol for the alcoholic, or it’s more heroin for the drug addict. Then of course, you need more and more of that to keep an addict from being in withdrawal, but it doesn’t help the problem, it just makes it worse, and that’s essentially what has been going on.”...Not only has our government not changed, but every government in the world is continuing to follow the same Keynesian policies, and of course, they haven’t worked, they aren’t working, but we just keep doing more of the same....

None of the Keynesian economists who were propounding, “Let’s have more stimulus,” are providing any justification for it, on a theoretical basis, or an evidence basis....because the truth is, there is no logic and there is no evidence for it.

When you have high unemployment, that tells you that there is something wrong with the price system, that there are prices that are not in the right relationship to each other, and yet, the government keeps messing up the biggest, most important prices of all, one of which is interest rates. The system really can’t function if the information that the market is providing in the form of the interest rate, is not available.

And of course, it makes no sense at all, as Keynes advocated, to keep driving interest rates down to zero and hold them there.

Lewis stated Keynes' policies were “ideologically driven,” or, as interviewer David McAlvany put it, “Keynesian economic theories were simply a justification for his own personal choices and ethical leanings.” One of these was his advocacy of progressive taxation, taking more money from the wealthy and redistributing it. Lacking economic justification for this, Keynes invented an uneconomic one. Lewis explained that Keynes

suggested that the government could print new money. That money would flow into the economy in the form of debt, and that would take the place of savings, but there is just no evidence for that at all, there is no logic behind that. In fact, if you want a good economy, what you need is savings, and you need then to invest those savings, and you need to invest those savings in a wise way...Of course, Keynes completely ignores the issue of how you are investing. For him, not only is any investment equivalent to any other investment, but spending is equivalent to investment. It just doesn’t make any sense at all.

Keynes believed progressive taxation would promote increased spending, which he favored. He even endorsed printing money with expiration dates so people would be forced to spend it. Of course, that would eliminate not only saving but the essential function of money as a store of value. But for Keynes, spending was what really mattered to the economy. Naturally that idea was very appealing to politicians anxious to spend for causes they favored, including their own elections.

OUTLOOK

In the U.S. the recent modest upturn in housing construction and home prices and new highs in the stock market have been trumpeted as signs of economic recovery. But improvements in those areas are exactly what one would expect from the Fed's policies.

Of the $85 billion the Fed prints every month, $40 billion is for mortgage securities, which favors the housing industry. Throw in the Fed policy of maintaining ultra-low interest rates—meaning low-cost mortgages—and it is not surprising to see a plus effect on this market despite a still large oversupply of homes. Furthermore, despite recent increases in home prices, more than 14 million homeowners nationwide—one in four people with a mortgage—are still making payments on debts that exceed the value of their homes by more than $1 trillion. “Negative equity will remain a major factor in the market for the foreseeable future,” says Zillow's chief economist, Stan Humphries.

As for the highs in the stock market, the Fed policy of depressing interest rates has led to a loss of income from CDs and other safe investments. This has resulted in people trying to obtain higher yields by switching to riskier investments, such as the stock market. The inflow of funds to the stock market has led to stock valuations outrunning the performance of the companies. A future rise in interest rates will be a further risk to the stock market as money will flow out of it and back into safer investments with higher yields.

U.S. unemployment is now officially at 7.5%, compared to 7.2 % in December 2007, before Obama's stimulus program. The real current rate is actually twice as high as the official rate if involuntary temporary and part-time employment and those who have stopped looking for work are included. Most people who obtain new jobs are taking significant pay cuts, and 11.7 million are still unemployed.

European economic problems are no longer much in the news, but the crisis is not over. In fact, it has worsened. The euro-zone economy shrank in the first quarter 2013, for a record six consecutive quarters. The Organization for Economic Cooperation and Development this week predicted the euro-zone will contract 0.6% in 2013, compared to its November estimate of 0.1% contraction. On May 31, the euro-zone unemployed rate reached 12.2%, a new record.

Unemployment in Spain rose to 27.2% from 26%, and 240,000 jobs were lost in the first quarter. Unemployment in Greece was also 27.2%. On May 28 the Greek central bank said the recession will likely get worse this year, with the economy likely to contract 4.6% and unemployment reaching 28%, both numbers worse than previously predicted. The Organization for Economic Cooperation and Development predicts Greece will remain in recession in 2014, unemployment will remain at 28.4%—and the country may require another bailout.

While other European countries were cutting minimum wage rates and raising retirement ages to improve employment numbers and slash government costs, France's socialist President Hollande did just the opposite. He increased the minimum wage and lowered the minimum retirement age from 62 to 60, reversing the raise by former president Nicolas Sarkozy. France fell into recession in the first quarter, and unemployment, now above 10%, increased for the 23^rd month in a row. France's debt to GDP ratio, now over 90, is the highest of any European country not receiving a bailout.

As the economies in various euro-zone countries have worsened, it became obvious that they could not meet their fiscal targets. On May 30 the European Commission, the executive arm of the European Union, agreed to allow more time for seven countries to bring their budget deficits in line. France, Spain, Poland and Slovenia were given an extra two years to limit their budget deficits to the EU standard of 3% of GDP. The Netherlands and Portugal were given one year extensions.

This was the third extension for Spain. Given the difficulties of Spain and other countries in meeting current fiscal targets, as well as previous ones, will they also need further extensions when the ones just issued expire? This becomes an interesting question because, as I explain in my new book, the ECB loaned almost a half trillion euros to 523(!) European banks in December 2011 and an even larger amount to 800(!) banks in February 2012. Together, these two loan programs amounted to over $1.3 trillion. The loans were made for three years, three times longer than any loans ever made by the ECB. They will start coming due about the time the newly announced budget extensions for the troubled countries expire. In addition, Spain and Italy have almost a trillion dollars worth of government securities coming due in the next two years. Now, if those loans cannot be repaid or government securities cannot be rolled over, can anyone believe that there will not be a colossal creation of new money and credit to prevent the collapse of the whole system? Just as with Havenstein, creating more money will seem better than the alternative.

But even before that would occur, the entire monetary structure is already so fragile it could be toppled by a major adverse economic event. This might be a crash in the U.S. stock market, fallout over raising the U.S. debt ceiling, a continued worsening in certain euro-zone economies, including perhaps more bailouts—maybe even the collapse of the euro. It might also be a far more widespread flight to gold than we have just seen, which would indicate massive distrust of the monetary system that in itself would cause the price of gold to skyrocket and accelerate the collapse of the monetary system even before the unlimited printing of money would bring about its end.

Bernanke said he believes when the time is appropriate he can manipulate the Fed policies to avoid runaway inflation. Good luck with that. It's never been done before. The great economist Henry Hazlitt said, “If a government resorts to inflation, that is, creates money in order to cover its budget deficits or expands credit in order to stimulate business, then no power on earth, no gimmick, device, trick or even indexation can prevent its economic consequences.” I think Hazlitt is far more likely to prove right than Bernanke.

There is a final issue that will accelerate monetary revolution and the restoration of gold in the monetary system: changing the rules of the game. International banking rules, known as the Basel Accords, are produced by the Basel Committee on Banking Supervision, which is part of the Bank for International Settlements. The committee is composed of regulators from 27 nations, including the U.S., U.K., and China. The Bank for International Settlements includes 58 major central banks.

As I pointed out in my book, the new Basel III Accords will henceforth classify gold as a Tier 1 capital asset instead of its present Tier 3 classification. The significance of this is that a Tier 3 asset has a risk weight of 50 percent while a Tier 1 asset has a risk weight of zero--meaning gold will have an asset value of 100 percent, the same as cash or U.S. treasuries. Currently, if a bank has an ounce of gold valued at $1,700, it can only include $850 as part of the bank's Tier 1 capital; if the bank sells that ounce of gold, it can count the $1,700 it receives. Obviously a bank is more likely to hold gold as part of it capital if it can be counted for full value the same as cash. And the current Tier 1 requirement of banks for 4.5% capital will be raised to 5.5% in 2014 and 6% in 2015. Gold is likely to be more attractive as a Tier 1 asset to banks at all levels, not just the central banks—which are already loading up on gold—as quantitative easing takes it toll on the value of U.S. dollars and the Tier 1 requirement is raised.

In April 2013, the Bank for International Settlements issued a report stating:

Basel Committee members agreed to begin implementation of Basel III’s capital standards from 1 January 2013, requiring that they translate the Basel III standards into national laws and regulations before this date. Since the Basel Committee’s October 2012 report, eight more member jurisdictions have issued final Basel III-based capital regulations, bringing the total to 14. Eleven Basel Committee member jurisdictions now have final Basel III capital rules in force: Australia, Canada, China, Hong Kong SAR, India, Japan, Mexico, Saudi Arabia, Singapore, South Africa and Switzerland.... Argentina, Brazil and Russia have issued final rules and will bring them into force by end 2013. The other 13 member countries that missed the 1 January 2013 deadline for issuing final regulations have published their draft regulations [The report names the U.S. as one of them]....The Basel Committee is urging those jurisdictions to issue final versions of their regulations as soon as possible and to align their implementation with the internationally agreed transition period deadlines.

Not surprisingly, the U.S. is not among those nations that have already put the new Basel rules into force, but it is clearly on a track to do so. It is a member of the Basel Committee that formulated the new rules and has agreed to them. The U.S. cannot backtrack now and fail to adopt those rules. The value of the dollar would plummet, as would U.S. exports and world trade generally. No, that won't happen. The U.S. will comply with the new rules, and that will be the end of the global financial bubble the U.S. has been inflating since it severed the last link of the dollar to gold in 1971.