Currency War

by Lawrence B. Lindsey

  “But it likely doesn’t stop there. Their leadership is desperate. They have botched their economic management and the natives are getting restless. They will do anything to distract the population from what has happened to their daily lives. That includes creating an external threat around which they can rally the population to defend the status quo.

  “The government of the United States would like to enlist your assistance to stop them. It is no secret that CIA has not done that good a job in anticipating the Chinese government’s next moves. In fact, they have done a downright terrible job. It reminds me of their forecasts in the 1970s of how Soviet economic growth would soon overtake us. It’s a real institutional failure. But of course, you are the expert on things like that.

  “So I would like you to volunteer for your adopted country. I need a real team B at the Agency. Actually, you will probably be team A given their current incompetence, but it would be bad human resources policy to say that. I need to know exactly what China is planning, what their weaknesses are, and maybe even how we can exploit them.

  “Ben is giving me insight on their economy, but I need reliable intel on their decision-making structure. Ultimately Li must answer to the Politburo, so I need to know what they’re thinking and where their divisions are. And I need to know if war hawks plan to turn this into more than an economic battle and what I can do to stop them. Get the picture?”

  Bernadette took her time to finish chewing and placed her fork on the side of her plate as deliberately as the President had. “How am I supposed to do this, Mr. President? I have been out of the business completely for eight years and was phasing out before that. I don’t have access to information and the data I need. I need intel on the characters in the game. At this point I really am a Virginia housewife who writes novels.”

  “I’ll use my presidential authority to grant you any and all clearances you need up through and including code words. You can see anything that I can see. In fact, you can see things that Ben has been excluded from, though if you accept, I will open the gates for him as well. Can’t have something slipping out during pillow talk, now can we?”

  Cynthia gave him a raised eyebrow.

  The President ignored her nonverbal chide. “You’ll work directly with Lopez and his staff. No holds barred. You won’t have to report to Langley every day, only when you need to. Lopez will fill you in.”

  “Mr. President, I haven’t said yes. I really do have to think this over.”

  “Of course. Lopez will call you at nine tomorrow morning for your answer. Not that we have a backup plan. You are the best there is and I intend to have the best for the sake of this country. I hate to be in this situation, but I have no bargaining power. Unfortunately, I can’t pay you anything as the press would find out. But the President of the United States would be in your debt, Mrs. Coleman. When you need a favor, anytime, you need merely ask.”

  “I will give it thorough consideration,” Bernadette said.

  The President nodded and, not missing a beat, turned his attention to Ben. “Would you join me in the study for a brandy? I want to get your take on something. Ladies, you are free to join us, but maybe you two would like to get to know each other a bit better.” The President pushed his chair away from the table, placed his napkin on his plate, and led Ben to another room.

  Bernadette sat at the dinner table agape at what had just happened. She looked at Cynthia. “Did I hear that right? The men are going to retire to their brandies and the lady folk can go do their womanly things?”

  “Don’t mind Will. To be perfectly frank, I set him up to that. I knew that he would give you his usual hard sell, but I wanted to give you a fuller picture of the situation.”

  “What do you mean?”

  The First Lady relaxed into her chair, throwing her napkin on to the table. “All relationships are different. You and Ben obviously have a very successful one. You know and respect each other’s boundaries. But your relationship with Ben is different from the one he had with Ellen, his first wife.

  “Remember, I’m wife number four. The first three thought their role was to look pretty and run up credit card debt to achieve that end. Combined duration of all three marriages was eleven years. I’ve been married to him for twice that.”

  “Congratulations. You have my envy.”

  “No need,” said the First Lady. “You and me, we’re very much alike in a way. We’re both married to men who are visionary, perhaps at the expense of everything else. They need an anchor.”

  Bernadette laughed. “Tell me about it. Ben is so… so….”

  “Yes.” The First Lady nodded.

  “It’s like that thing with Einstein not wearing socks. Once Ben gets something in his head, he’s like a cat with a mouse, batting it around to the exclusion of everything else. It’s like they need us to civilize them.”

  “Exactly. And that’s probably why Will’s other marriages failed. He doesn’t need a bauble. He needs a manager. He is an unbridled force of nature who will go and go and go in whatever direction he is pointed in. In that sense he is unstoppable. Subtlety is not his style. He went through school on a football scholarship, the son of a truck driver and a waitress at a diner. If you’ve ever seen a film of him playing you would understand. If he had possession of the ball, he would push and dodge and weave for five or six yards when most men might gain one or two. He ran his business ventures the same way. And frankly, when he decided to run for office it was pure dogged determination that got him here. All the way through it has been my job to help manage and direct that raw strength.

  “But now here we are, and neither of our jobs is like anything we’ve ever seen before. Washington is like quicksand. The harder you move, the more it sucks you down. Unlike business there is no real overall objective. It’s everyone for themselves, a never-ending search for power where there is only so much to go around. The classic zero-sum game.”

  “A bubble,” said Bernadette. “The Beltway is like the border, and once you cross it’s like you’re in this… well, it’s a reality, but it’s different from what’s on the other side of the Beltway. Out there you have people working just to make the house payment and get their child braces and a college education. In here, the priorities are so different. So intense.”

  The First Lady nodded. “I’m glad to hear you say that. Because it’s our job to provide an anchor into that reality.”

  “And point out the obvious,” Bernadette said. “Because men never stop the car and ask for directions.”

  Now the First Lady laughed. “Exactly.” When the laughter passed, she looked Bernadette straight in the eye. “Now I have a confession to make. I have had my eye on you ever since Ben was nominated. That’s why I read all the briefs. How else am I to manage my end of the job? The President needs you and the country needs you, and maybe even the world needs you to get us through this China task. But I need you to help me do my job in guiding the President. Psychology and organizational behavior? I use those talents. I need someone like you to bounce ideas off of.

  “See, most of the wives in this town are those baubles, strictly for the campaign trail. You have real substance. Real talent. And you understand that the reality of things is not all inside the Washington Beltway.”

  Bernadette paused to take it all in. She had heard of direct and to the point, but here was the First Lady of the United States asking her in the most direct way she could. Her tactics, the directness, could be explained by a lack of time and a lack of opportunity.

  “What exactly are you asking of me?”

  “I need a friend. I know how strange that sounds. Real friendship takes a long time to develop as trust builds. So I’m asking for friendship in the business sense of the word. Someone I can count on to bounce ideas off of. Someone who is willing to tell me that I’m nuts. It’s the same thing Will said he saw in Ben. He was the only one who did not tell him what he wanted to hear. Do you think it’s any different for me?”

  “
I see your point.”

  “So what do you say?”

  Bernadette sighed. “Between you and Lopez, it sounds like there will be a lot of demands on my time.”

  “Think of it as joining a team. I learned that one from Will. It’s how he thinks. And he is intensely loyal to anyone who has ever served on his team. That bit about the President of the United States owing you a favor. He really and truly means it. If twenty years from now you need a favor, he will deliver. That’s his form of organizational behavior—intense, unending loyalty.”

  Bernadette realized Cynthia Turner was a woman after her own heart, an extraordinary talent who found the right niche to make the most of her talents. She was the best there ever could be at managing Willard Turner.

  “Mrs. Turner,” she said, “I would be honored—”

  “Stop right there,” said the First Lady. “I know what you’ve been told about protocol, about using titles no matter what, but if we’re going to be confidantes, we must dispose of that once and for all. So from this moment and forever more, you must call me Cynthia.”

  Bernadette smiled at her. Well, she thought, orders are orders. And this is coming from the top. “All right… Cynthia. I’m in.”

  CHAPTER SIX

  BEN WAS SITTING ACROSS FROM Bernadette at their kitchen table when his mobile phone rang. It was Peggy.

  “I have Governor Li on the line,” she said.

  Ben excused himself and walked into the living room where he picked up the old-fashioned corded phone that constituted his landline. Seemingly obsolete, landlines were still a Washington necessity—scrambled calls couldn’t be transmitted any other way.

  “Li Xue. What do I owe the honor?”

  “Ben, per our agreement, I want you to know that the Politburo has chosen to implement the policy you and I discussed. I will be making a formal announcement before our markets open on Monday morning, tomorrow night your time. I have persuaded the Politburo to do it in a fashion that minimizes collateral damage.”

  “Thank you, Xue. I have thought through our response to your government’s decision to sell its holdings of U.S. Treasuries. It is also designed to minimize collateral damage.”

  “You mean, ‘large bills or small?’ ”

  “I’m never going to live that line down, am I, Xue?” Ben was happy that the two men could inject a little humor into the conversation at such a tense moment.

  “I’d rather have the large bills,” Xue said.

  Ben chuckled. “Thank you so much for your call. We both have a lot of work to do now, I know.”

  The two men hung up.

  Ben immediately called Peggy. “Hope you didn’t have a hot date tonight.”

  Peggy said, “After I took the call from Li’s office, I knew that it wouldn’t be possible, even if I had one lined up.”

  “We’re going to need an emergency Federal Open Market Committee phone call tomorrow, probably around eleven o’clock. The exact timing is going to be determined by the call you have to make first, which is to get President Turner on the line. If you could give me Lopez’s home number, I’ll call him and Steinway myself. You’ll be too busy calling the other eighteen members of the FOMC.”

  “I’m on it,” said Peggy.

  Three minutes later, she called to say, “I have President Turner’s assistant on the line. She’s waiting for you to pick up.”

  “Ben here,” he said.

  Immediately the President came on the line. “I doubt you have any good news for me at this hour, do you, Ben?”

  “No, sir. Li gave me advance notice that the Chinese are going to proceed before their markets open on Monday, tomorrow night our time. Might I suggest, sir, that we convene again in your office sometime tomorrow afternoon? I am going to have to get the permission of the FOMC to implement our plan and am setting up a late morning telephonic meeting.”

  “How does eight o’clock sound,” said President Turner. “We can discuss and then watch the markets open in China.”

  “Perfect,” said Ben. After hanging up, he immediately called Peggy. “Let’s set our meeting up for eleven.”

  * * *

  With the emergency FOMC conference call starting at eleven, time would be tight. The conference call was all about getting the ducks in a row for what was about to happen in the next few days. But ducks liked to quack. Ben realized that thought was a bit unfair. Their job was to quack. He was a great believer in diversity of viewpoints, and that was being offered. He just wished they could quack more succinctly and only when they had a relevant noise to make. Too many felt that they had to make noise in order to be relevant, and the situation had gotten worse since verbatim transcripts of the FOMC meetings were published. Members now felt obliged to say something, while trying to not say anything that would look controversial or foolish. So set-piece speeches replaced free and frank exchanges of views. The real purpose of a committee—to entertain a wide range of views, especially some that might be out of the box—had disappeared. The public and the politicians demanded transparency and accountability. What they got was conformity and mediocrity.

  He unbuttoned his suit jacket and slid into his chair. Peggy had already placed a glass of water and a stack of paper on his desk. As he waited for the green light from Peggy letting him know that the calls were ready and waiting for him, Ben knew what he had to do.

  “Ladies and gentlemen, I have bad news and I have more bad news.” He could hear the chuckles; he had never been known as a font of good news. And if it wasn’t bad news there wouldn’t be any need for an emergency meeting. “Before I begin, I can’t stress enough how extremely sensitive what we are about to discuss is. If there are any leaks from this meeting, I will not hesitate to ask the office of the Inspector General to interview everyone on this line under oath. Am I clear?” Ben paused, letting what he had said sink in. He knew that the silent voices on the other end of the phone were aware of the serious nature of an information leak, but it was his responsibility to ensure that he reiterated this fact.

  He proceeded to sketch out the conversation he’d had with Governor Li the day before. He concluded the way he had with Secretary Steinway. “The markets are going to be hit with an additional $700 billion to $1.2 trillion of Treasury securities over the next six months on top of the existing supply needed to cover the deficit and maturing securities.” He then added what to everyone in Washington would be obvious but might not be so outside the Beltway. “This is more than a monetary policy matter. It will be perceived in many quarters as an act of war.” He paused, letting his last statement sink in.

  “So let me give you the second piece of bad news. I am due to meet with the President later today. I hope to convey to him that this is more an act of desperation on the part of the Chinese than an act of war. But even if he bought that intellectually, it is not a sentiment around which he can rally the country. Make no mistake, Governor Li is not our friend. His long-term goal is to have the yuan replace the dollar as the world’s reserve currency. That makes him a competitor in a game in which there can be only one winner.

  “But it does not make him an enemy. Unlike some of his friends in the Politburo, he does not want to drag down the entire world economy during this competition. However, he reports to some who do view us as an enemy in the truest sense of that term and will be willing to inflict any collateral damage required to win, including collapsing the global economy.”

  Ben took a second, staring intently at the sweating glass on his desk. What came next had to be said carefully since there were both public and highly classified sources for the information, and he wanted to stick with the former and avoid the latter.

  “The men we are facing are desperate. And desperate men take desperate measures. There were published reports that units of the People’s Liberation Army had been dispersed to guard bank branches. There were also reports that a bank run got disorderly and PLA troops fired on the crowd of depositors demanding their money.

  “There are rea
sons to believe those reports are accurate. What is not publicly known is that I was in the midst of one of those bank runs. I saw the crowds. I saw the PLA fire into the crowds, and candidly, I found myself hiding in a dumpster to avoid the bullets. It is an experience I will never forget.” Ben picked up the water and took a measured sip. The pause had the intended effect. There was shocked silence on the phone.

  That had softened the group up emotionally. Now for the institutional coup de grâce that he hoped would secure what he needed from this meeting.

  “I believe that the Federal Reserve System has an obligation at this point in time to act as a stabilizing force. While politicians talk about the dual mandate of minimizing unemployment and inflation, those mandates presuppose an orderliness in markets and in global financial and economic conditions. It is maintaining that orderliness that is our real mandate.

  “We are at a moment in time where the ranking of that fundamental priority should be apparent to all. This is a moment when cooler heads must prevail. By definition the members of this committee are the cooler heads in a world otherwise succumbing to a state of madness. It is my judgment that Governor Li and his associates at the People’s Bank of China are in a similar, though not identical, circumstance and that they realize it. We must do our part to maintain that level of fundamental orderliness just as Li must do the same on his end.

  “I am about to meet with the President, the Secretary of Treasury, and the Director of the CIA. I believe that my colleagues will all be representing the institutional interests of their agencies, each of which also favor orderliness. They will be advising the President to take as calm an approach as possible. I suspect that the CIA will be cautioning about how a misstep could quickly escalate into war and therefore caution is advised.

  “That is not the strongest argument to make to any president. It is the President’s job to show strength and resolve and the public elected him to do just that. Steinway is going to defer to us; he always does on monetary matters and in this situation, he is right to do so. It will be my job to reassure the President that everything will work out. That we hold the cards and will prevail if we play them carefully. That in risk lies opportunity. I need to convince him that America—and by implication, he—can win.”