by David Meyer
“It’s not well-known, but we’ve been forced to liquidate those reserves over the last few months.” He hesitated. “The reason will be apparent soon. But suffice it to say, certain central banks will no longer accept the U.S. dollar as payment for international transactions.”
This seemed like a troubling development, but I decided to leave it alone for the moment.
“Let’s say an ounce of gold goes for a thousand dollars.” Beverly looked at the roof, silently calculating numbers. “That’s $147 billion. Not bad, but nothing compared to the national debt.”
Donovan closed the notepad. “It’s just collateral. We’re not actually selling Fort Knox’s reserves.”
“We’re getting ahead of ourselves here.” Ben paused. “Do any of you know how Fort Knox got its gold in the first place?”
We shook our heads.
“Once upon a time, the U.S. currency was backed by gold,” Ben said. “A person could take a sack of gold powder into a bank and exchange it at $20.67 per ounce. That changed in 1933 when President Roosevelt issued Executive Order 6102. It required Americans to give up their personal gold and bullion at that same price.”
I arched an eyebrow. “Required?”
He nodded. “Numerous Americans were prosecuted because of 6102. Their gold was seized and some of them actually went to jail.”
“Owning gold.” Graham chuckled humorlessly. “The ultimate crime.”
“I’m sure FDR had his reasons,” Donovan said defensively.
“He did. Mainly, he wanted to spend more money than the laws of the time allowed.” Ben paused. “Same as now, the Federal Reserve operated a fractional-reserve banking system. So, banks only needed to keep a fraction of gold deposits on hand. The rest could be used to make loans or investments. But such a system wasn’t risk-free.”
“You’re talking about bank runs,” I said.
“Exactly. If the public suddenly panicked, they might’ve tried to withdraw gold en masse. And since banks didn’t have enough gold to fulfill the demand, they would’ve defaulted.” He crossed his legs. “But if the public could no longer legally own gold, they couldn’t redeem it. And so, 6102 eliminated the risk of a gold-oriented bank run. This allowed the Federal Reserve to create as much money as it wanted. You could argue that’s a good thing since it helped finance the massive government deficits during World War II. On the other hand, the ability to create lots of new money causes the nasty phenomenon known as inflation.”
We were silent for a moment.
“So, the U.S. government seized all of America’s gold. And of course, it needed a place to store it.” Beverly looked thoughtful. “I guess that explains why Fort Knox was built.”
Donovan nodded. “That’s correct.”
I glanced at Ben. “So, that was the end of the gold standard?”
“Not completely. Gold couldn’t be redeemed, but it was still tied to the dollar. This became apparent shortly after 6102. You see, the Treasury still used gold for international transactions. So, when President Roosevelt upped its official price to $35, there was some domestic fallout.”
“Why?” The president looked confused. “He got the gold at $20.67 and sold it at $35. That’s a 70 percent profit.”
“For the government, maybe. But think about it from the average American’s perspective. He got $20.67 for one ounce of gold. But if he wanted to buy that same ounce back, he’d have to pay $35.”
“Oh, I see.” President Walters nodded. “In other words, FDR devalued the dollar.”
“Actually, he destroyed its value. In one fell swoop, he cut the purchasing power by 40 percent.” Air Force One trembled ever so slightly. Ben waited for the turbulence to stop before continuing. “That leads us to Bretton Woods. In 1944, forty-four nations met in Bretton Woods, New Hampshire to establish a new global monetary system. Each nation agreed to peg its currency to the U.S. dollar. In turn, the U.S. agreed to continue linking the dollar to gold at $35 per ounce. Bretton Woods made the U.S. dollar the de-facto global currency. That system survived, for better or worse, until President Johnson took office. Between the Vietnam War and the Great Society, he pushed government spending to all new highs.”
“I remember that,” Graham said. “He called it his ‘guns and butter’ strategy.”
“That’s right. Eventually, President Nixon took office, but the spending didn’t end. And as the Federal Reserve printed more and more money to pay for its expenditures, the value of the dollar began to decline. The Bretton Woods signatories grew nervous. Their dollars were becoming worthless and they’d lost faith in the U.S. government’s ability to turn things around. So, they started trading in their dollars for gold at $35 per ounce.”
“And that gold came out of Fort Knox?” Beverly asked.
Ben nodded. “Prices started to rise and Americans got angry. Nixon tried to blame things on international speculators and bankers. When that didn’t work, he closed the gold window.”
I perked up. “The what?”
“The gold window. In other words, he stopped selling gold at $35 per ounce. Then he cut the link between the dollar and gold. Fort Knox was sealed off and America’s currency was set free to float with the tides.”
“Must’ve been quite a shock.”
“Oh, it was. Even Nixon’s own state department didn’t know about it until the official announcement.” Ben shrugged. “Americans, for the most part, loved it. They thought Nixon was rescuing them from price gougers and international bankers. Few people at the time realized Nixon’s spending, as well as the spending of his predecessors, had caused prices to rise in the first place.”
“And that leads us to today,” Donovan said. “Currently, America operates with a fiat currency. In other words, the U.S. dollar isn’t backed by gold or anything tangible. Instead, it’s backed by the full faith and credit of the United States government. The advantage of a fiat currency is that a country can always print new money and thus, never go bankrupt. The bad thing is that there’s nothing to restrain spending. And if you spend too much—”
“You get inflation,” I said, finishing his thought for him.
“Think worse,” Ben said. “Much worse.”
Graham’s jaw dropped. “Hyperinflation?”
“Even worse.” Ben sported a grave countenance. “The economy is currently stagnant. Combined with rapidly rising prices and we’re now on the verge of stagflation.”
I knew about stagflation, knew the horrors it could bring upon an economy. “Money supply is your department.” I looked at Ben. “So, hold the printing presses until inflation dries up. We’ll suffer through stagnation for a few years, but it’s better than hyperinflation.”
“I wish it was that simple,” Ben replied. “But if the Fed stops printing money, the U.S. government won’t be able to make its interest payments.”
“Gotcha.” I understood the problem, but a viable solution was way outside my skill set. “So, what’s this got to do with Fort Knox?”
“It’s very simple. I’m pulling a reverse Nixon. I’m going to put America back on the gold standard.” A smile broke out on President Walters’ face. “And I’m going to use Fort Knox to do it.”
CHAPTER 40
“A gold standard?” Graham laughed out loud. “You’ve got to be kidding me.”
“Show some respect,” Donovan hissed under his breath.
Graham laughed even harder.
The president stared at him like he’d lost his mind. “What’s so funny?”
Graham fought to control his laughter. “Do you know why nobody uses a gold standard anymore?”
“No.”
“Because …” Somehow, he forced his laughter down to mere chuckles. “Because it means politicians can’t just spend money whenever they feel like it.”
“Very true.” Ben leaned back in his seat. “The only way this works is if the Federal Reserve stops helping the U.S. government pay its debts.”
“Yes,” the president said. “For
the remainder of my administration, the government will only spend what it collects in taxes or what it borrows from private lenders.”
Graham’s chuckles died off. A look of skepticism crossed his visage. “And what does Congress have to say about this?”
“Congress won’t have a choice. At least not at first. We’re going to do everything with executive orders.”
“They’ll defy you,” Beverly said. “Probably impeach you, too.”
“Probably.” The president shrugged. “Unfortunately, we don’t have a choice. A return to the gold standard is the only way to keep America’s economy afloat.”
“How will this gold standard of yours work?” I asked Ben.
“Due to the unfortunate passing of Terry Horst, I’ve been assigned temporary control of the Treasury Department.” Donovan adopted a superior look. “So, this is actually my gold standard, not his.”
I rolled my eyes. “Good for you.”
“Uh, yes,” he said in a flustered tone. “Well, we’ve developed a multi-step program. We’ll announce the details on Monday morning.”
“And?” Beverly stared at him expectantly. “You’re not going to make us wait, are you?”
“After the official announcement is made, the president will declare an extended banking holiday along with an end to all restrictions on gold trading. We’ll freeze the amount of cash in circulation and determine a new dollar-to-gold ratio.”
“The ratio will be small,” Ben added. “But each unit of currency will be backed by some gold.”
“Where was I?” Donovan flipped through his notepad again. “Oh, yes. Obviously, rules will be set in place to make sure the Fed can no longer lend money to the U.S. government. Outstanding debts will be paid down as quickly as possible. And programs like Social Security and Medicare—along with the taxes that are supposed to support them—will be phased out over a period of years.”
“Is that all?” I quipped.
Donovan frowned.
“I think what Cy is trying to say is that you’ve gone off-the-wall bonkers.” Graham shook his head. “Look, I’m no fan of bureaucracy. But the voters will crucify all of you.”
“And even if you make it work, your successors will never keep it up,” I added. “They’ll just go right back to the old ways.”
“That’s possible,” Ben admitted. “But we’re gambling that the economy will have improved by that point. So much, in fact, that no one will want to change anything.”
For the next few minutes, he, the president, and Donovan assailed us with facts and figures. They shared economic projections and explained how a gold standard would affect the average person. When I could take no more, I held a hand up. “You’ve obviously put a lot of thought into this,” I said. “But why do you need us?”
“The last official audit of Fort Knox was held in 1953,” Ben said. “But it wasn’t even close to comprehensive.”
The president placed his elbows on the desk. Steepling his fingers, he studied my face. “As we already mentioned, the official announcement will take place Monday morning. I plan to do it at Fort Knox, in front of all that gold. As part of my speech, I’d like to introduce you as Chief Auditor.”
“We’re treasure hunters,” I said. “Not auditors.”
“It’s a symbolic position. Whether you believe it or not, you’re a hero in the eyes of the public. They trust you, believe in you. Your presence will add gravity to the affair.”
“In other words, you want to use me.”
While the president squirmed in his seat, Donovan gave me a hard look. “If you refuse, you’ll never get the files.”
Ben cocked his head. “What files?”
“Keith promised me anything if I’d get on this plane. So, I asked for some old Army files.”
“They aren’t normal files,” Donovan said. “They’re classified.”
“It’s just stuff about my grandfather and some of his friends. They disappeared back in 1949 and I’m trying to find out what happened to them.” Frowning, I glanced at the president. “Why are files from World War II still classified anyway?”
“I don’t know.” President Walters avoided my gaze. “But Keith is right. If you want them, you’ll have to play ball with us.”
I didn’t appreciate the position they’d put me in. Nor did I like the idea of being used as a political pawn. Still, I wanted those files. “I’ll think about it.”
CHAPTER 41
Ben cracked the door to the large space serving as both a galley and a conference room. Seeing no one, he slipped inside and shut the door behind him.
An overhead light popped on. The room was slightly larger than the president’s office. It featured a long wood table surrounded by bulky leather chairs. The chairs, like all the other seats in Air Force One, were anchored to the floor. A curving sofa faced the table and ran the length of the room. That was where the less-important people sat. The people who didn’t deserve chairs.
As Ben walked to the opposite side of the room, he found himself worrying about Cy’s demand for U.S. Army files. Ever since he’d brought up the man’s name to the president back in Washington, he’d known he was taking a calculated risk. On one hand, he needed Cy’s presence and star power to pull off his plans. On the other hand, there was always the possibility Cy would start to connect the dots.
Ben dialed a number on his satphone. It rang a few times before a tough, ancient voice filled his ear.
“Hey Benny. How’s it hanging?”
Ben smiled. His father used to call him Benny. The nickname had never really taken off except amongst Roy’s close friends. And Roy Marvin and Milt Stevens had been very close friends, brought together by that fateful night back in 1949. “It’s hanging …” Ben frowned. He never knew how to answer that question. Was it hanging low? High? Were those good things? “I’m fine,” he said at last. “Listen, I have news for you.”
“What is it? Finally found an old lady to polish your knob?”
“Not exactly.” Wow, this man was uncouth. “You’re going to have visitors in the next few hours.”
Milt chuckled. “Good one.”
“I’m currently aboard Air Force One with President Walters, his acting Secretary of the Treasury, and a couple of other passengers. We’re en route to Kentucky.”
A brief pause followed. “You’re not joking, are you?”
“I’m afraid not.”
“We don’t allow visitors. You know that as well as anyone.”
“You’re going to have to make an exception. President Walters has decided to institute a new monetary system centered around gold. He wants to make the announcement at your facility.”
“Drat it all to hell,” Milt said through clenched teeth. “Forget it. No one gets in here.”
“I know your secret.”
A long pause followed. “What?”
“I know what you’re hiding in Fort Knox. Father’s papers were very explicit on that matter.”
Milt exhaled. “Then you know damn well why I can’t let you inside.”
He didn’t have to elaborate. Ben knew the score. He knew what secret Milt was hiding deep inside the depository. And he knew that secret, when revealed, would destroy Milt’s reputation. It would destroy a lot of things.
He was counting on that.
“I can protect you,” Ben said. “But you have to do as I say …”
CHAPTER 42
“Sorry for the interruption, folks.” The driver’s voice crackled slightly from a pair of speakers. “But I thought you’d like to know we’re nearing our destination.”
Graham pressed an intercom button mounted on the wall next to him. “Thanks, Corporal.”
My body jostled as the SUV rode over a small bump. Our vehicle was one of about a dozen currently driving from Godman Army Airfield to the United States Bullion Depository.
Normally, the president traveled in a stylish, custom-built limousine, widely known as Calico. Other limos, along with military escort v
ehicles and at least one ambulance, accompanied Calico on all trips, foreign or domestic. But Calico was well-known to the general public and since our trip to Fort Knox was still a secret, the president had chosen to travel in more discreet fashion.
The resulting fleet, specially prepared for the trip, appeared nondescript from the outside. However, the cars were heavily armored and featured bulletproof glass as well as top-notch communication systems. The president’s car, which carried him along with Ben and Donovan, also contained a gas-proof chamber and a myriad of other defenses. Clearly, Fort Knox’s overseers were taking no chances.
Glancing over her shoulder, Beverly stared through the tinted back window. “Which car has the president?”
Graham yawned. “Who cares?”
We hadn’t merited inclusion in the president’s car. Instead, we’d been herded into an SUV driven by Corporal Christopher Wendell, an older man with a round head and a pug-like face.
“Just curious.” Beverly turned around again. “So, what do you guys make of this gold standard thing?”
“Interesting in theory,” I replied. “But it’ll never work.”
“Why not?”
“Like Dutch said, a gold standard doesn’t allow for money printing. Politicians will only be able to spend what they tax or borrow. How long do you think that’ll last?” I chuckled. “I predict failure within two weeks.”
“I call one week,” Graham said.
“If it’s going to fail, then why is President Walters doing it?” she asked.
I shrugged. “Stagflation is an economy killer. This must be his last resort.”
“So, what happens if the gold standard fails?”
“Hyperinflation. Economic depression. Riots and civil unrest. The end of America’s superpower status. Basically, everything goes from pretty good to pretty damn awful.”
She smiled lightly. “That’s all?”
The vehicle twisted to the right. Jolting, it rolled onto a driveway. I turned to the front. A bulletproof partition separated us from Wendell. The front window, also bulletproof, rested just beyond it. The two thick panes obscured my vision as did a tall wire fence.