Ben looked up, giving everyone time to process what had been said when a voice broke in. It was Sarah Miller, who as President of the New York Fed was also Vice Chair of the Federal Open Market Committee. “Yes, Vice Chair Miller….”
“Mr. Chairman, I think I understand what you are saying. I also think I can speak for this committee in wishing you good luck this afternoon. But it would also be less than appropriate if I didn’t ask if you were all right. After all, not many of us can say we have ever been shot at.”
“Sarah, I am fine. Thank you for asking. Got a bit of a scolding from Bernadette for having taken some chances, but aside from those bruises, I am unharmed.” He chuckled to make clear he was joking and could hear the same on the other end of the line.
He continued. “To the point, the motives of the Politburo are to make us feel the same sense of panic here that they are seeing on their own streets. Earlier I told you I was going to tell the President that things are under control and work with my colleagues to convince the President not to escalate matters. That is exactly what I am going to do. But here at the Fed, in the realm in which we operate, we are already at war, a currency war. It is one we cannot afford to lose or we will be seeing the same panicked faces on the streets of our towns and cities that I saw in Beijing.”
“Mr. Chairman,” said Sarah Miller, “I am glad you were so candid with us. For what it’s worth, you have my complete support.”
Most of the members of the FOMC had not voted for Turner in the last election. They had been appointed by his predecessor. They were not going to be in any mood to hand any of the FOMC’s power over to the White House. That included Sarah Miller. But she also knew her job as Vice Chair was to support the Chairman. If she thought Ben was going too far in that direction, she would have ample opportunity to tell him so.
“What would you like us to do?”
“I wish we could discuss this in more detail, but time is short. I would like to be able to walk into the Oval with the support of this committee to tell the President that we will do whatever it takes to preserve orderly markets and assure that the People’s Republic of China will not take advantage of the United States.”
“That’s pretty vague,” interrupted Governor Avery. A former academic, Avery was no fan of the incumbent. In fact, he loathed him. Ben knew that loathing extended to him as well. Avery instinctively mistrusted anyone who had left the ivory tower of academia and entered the real world unless it was a direct move into public service. In Avery’s view, going into the private sector meant giving up one’s purity and objectivity. The two would never see eye to eye.
“Governor, believe me, I wish I didn’t have to be vague. But honestly, I have no idea how the meeting is going to go in the Oval. What I am asking this committee for is to give me as strong a hand as possible and the freedom to play that hand as necessary to attain our objectives. Our objectives are to save America, its people, and its economy from the Politburo’s intentions and to do so in a way that preserves the independence of this institution. At this point we are at the level of strategy—at 37,000 feet. As we approach resolution, I will be much more specific about the tactics we will need to employ. After I have ascertained what the President has in mind and what his advisors are recommending, I will have the ability to provide something far more concrete than what I have done so far. It would be my hope that we could reconvene this meeting later this afternoon to do so.”
“That’s all well and good, but what exactly do you mean by, ‘whatever it takes’?” Avery wasn’t going to let go.
Ben decided to give Avery the answer in as direct a manner as possible. “I believe that ‘whatever it takes’ includes, but does not necessarily require, that the Federal Reserve purchase in the open market every Treasury security that the Chinese either sell or fail to rollover. The Chinese operation would thus be nothing more than a transfer of assets from one central bank balance sheet to another.”
“In other words, ‘large bills or small?’ ” By the tone of his voice, Ben knew Avery had a smile plastered across his face.
“Well, if that’s what we have to do, that’s what we have to do,” Ben replied, with a smile as charming as the one he knew Avery was wearing. “As I committed to Governor Avery, I fully expect that we will be able to have a fuller discussion of this matter later in the week when we know more. For the moment, I would ask your consent to a statement that the Federal Reserve will do whatever it takes to maintain the current structure of interest rates and the level of liquidity in the markets.” He crossed his fingers. “Are there any further questions at this time?”
“I don’t like the phrase ‘whatever it takes,’ ” said Avery.
“And I don’t like emotional contagion,” said Ben. “Let me frame it for you. We’ve all heard the stories from the Great Depression, the people leaping out of windows, bank runs, all of that. Well, here’s a more recent example. You remember the initial days of the 2020 pandemic? The panic buying? You couldn’t get toilet paper or rubber gloves or disinfectant in any form for love or money. And that was when people could still go to their ATMs and get out all the cash they wanted, even though the bank lobbies were closing.
“Now, take away people’s ability to get money. You can have all of the toilet paper in the world available, and if they can’t get their hands on something to buy it with… never mind food, gas, utilities. You want to see panic? Now we won’t be using the military to fire into the crowds, but it’s not going to be a pleasant scene. Especially for you incumbents.
“Gentlemen, this threat is very real. So you ask me if I mean it when I say ‘whatever it takes,’ my answer is, hell, yes.”
There was silence.
“Very well then, we shall reconvene as soon as we have more information. I will make sure that all your offices have a thirty minute advance warning. Thank you all very much.” Ben ended the call, stood up, gathered his paperwork, and strode purposefully to the door.
* * *
The President, Hector Lopez, George Steinway, and Ben all sat in the small sitting room off the Oval Office. Ben had handed each man a copy of the statement he was to make after Li’s announcement. It was the one blessed by the FOMC earlier in the day.
The President said, “Good job, Ben. You have remarkable political skills.”
Ben replied, “I’m not sure what you mean, Mr. President.”
Hector cleared his throat a bit too loudly.
The President’s face went slightly red. After a pause, he said, “Corralling a committee of nineteen men and women cannot possibly be an easy thing to do. Especially one packed with people with far too many years of schooling.” He followed that up with what he thought was a disarming chuckle.
“The members of the FOMC function as a board of directors, sir, not like a legislature,” Ben said.
“And you make a remarkable chairman,” said the President, a little too quickly. “As a former board chairman myself, I know that there is more than a little politics involved. But you made it happen. Like you said, whatever it takes.”
“Thank you, sir.” Ben’s radar went up. He looked from Lopez to the President and back again. Lopez looked calm, typically unrattled. The kind of look he got from Bernadette sometimes when she wasn’t entirely forthcoming. The President, on the other hand, was looking a little too innocent, like he’d almost gotten caught with his hand in the cookie jar. Ben pondered whether to press forward or to let the matter drop. Curiosity got the better of him. “I know I was asking a lot. Whatever it takes and all.”
The press paid off. The President said, “Whatever it takes is pretty open ended. They must really trust you.”
Now it was Ben’s turn to flash a neutral look. “Sir, the statement I handed you does not contain the words ‘whatever it takes.’ They’re implicit. But it’s funny you should use them in context with the FOMC statement, sir.” Ben stared straight at the President, daring him to lie.
Turner did not. “You caught me, Ben.
Your conference call was not completely secure.”
Hector sat forward in his chair. “Mr. President—”
“I asked Hector for a transcript.”
Ben’s face reddened. “Sir, that is a breach of the independence of the Federal Reserve. How do you expect me to maintain the trust of my colleagues when you do something like that? It’s not exactly like you are their favorite person.”
Hector intervened. “Ben, you know perfectly well that every call out of this building is monitored.”
“But this is the White House,” Ben said.
“The same is true with the Pentagon, Foggy Bottom, the CIA, the FBI, the NSC, and any part of official Washington that is involved in foreign affairs matters. Whether you like it or not, the Fed is now at the center of a foreign crisis.”
Ben was not mollified. “Do you bug the board room as well? You know that if any information leaks that is a violation of the Federal Reserve Act and could result in fines and imprisonment.” Ben knew he was stretching it just a bit. The law involved trading on leaked information.
The President realized it was time to back down for the sake of keeping the team together. “Ben, I am sorry. I made a mistake in asking Hector to do this. Please accept my apologies. I meant no disrespect. As Hector said, we are in the midst of a foreign policy crisis.”
Ben sensed that this was the best he was going to get but was still annoyed. “Let’s consider it water under the bridge, sir. When this is all over, I think we should all meet again and discuss appropriate protocols. I hope the tapping of the phone does not become public. It will cause trouble in the committee and we will be subject to all kinds of hearings on the Hill.”
“Of course,” said the President, though he knew there was an element of a bluff in Ben’s statement. But as had been said, water under the bridge. At least for now.
Steinway glanced at his watch. “If I can shift gears, gentlemen, the Chinese markets are about to open. I suggest we watch.”
The men turned their attention to the television. CNBC International was on the screen, the main anchor talking in front of a live video feed of a Chinese man stepping up onto a dais. The hot board at the bottom of the screen was scrolling through bond yields, stock market values, and currency exchange rates. If this had been a football game the crowds would have started to thin out around halftime. Compared to the massive swings of the previous week, this was like watching grass grow. The Shanghai composite was up three-quarters of one percent and the yuan was barely moving against the dollar. The U.S. ten-year yield had risen three basis points, or three one hundredths of a percentage point. This was not going to change the world.
The screen cut to the Beijing correspondent standing in the foreground, and behind her left shoulder Governor Li stood in the center of the dais, speaking from behind a lectern. She was listening to Li speak in Mandarin and translating—actually more like paraphrasing—for the viewing audience.
“The People’s Bank of China wants to assure every citizen of China that their money is as good as gold, whether it is deposited in a bank or held in cash. Today we are beginning the liquidation of our holding of U.S Treasury securities and those of other nations. We will use the proceeds from this liquidation to purchase and maintain gold reserves enough to back every yuan now in circulation. This sell-off will be orderly to maintain the stability of the global economy. We will not reinvest the proceeds of maturing securities in new securities. No one need worry any longer about the integrity of our currency.”
Ben chuckled at that. Li had the talent for massaging words that any successful bureaucratic politician would require to claw his way to the top as Li had. The word orderly was an unusual one to use when talking about liquidating two trillion in securities over six months. As for not worrying about the integrity of the yuan, Li had made one small mistake that Ben sought to exploit. Holders of the yuan could not simply walk into a bank and get gold. The gold had to stay in the government’s hands. They could still buy gold in the market, but Li was trying to tell them not to bother.
The television cut back to the Hong Kong studio anchor. “Thank you, May Ling, we need to come back though. A statement by the Federal Reserve Bank of New York has just hit the wires. It says, and I’m quoting here, ‘the Governor of the People’s Bank of China has announced that they will cease the reinvestment of their holdings of U.S. securities as they come due. The Federal Open Market Committee stands ready to engage in whatever open market operations are needed to maintain the stance of monetary policy in this period. This includes supplying liquidity as needed to assure the Treasury securities liquidated by the People’s Republic of China, up to and including the total dollar value of all securities.”
“Yes,” said Steinway.
“Okay,” said Hector Lopez. “For the spook in the room, what just happened?”
“Confidence,” Ben said. “The Fed just promised to buy up all the Treasury bonds as the Chinese sell them off. Suddenly it’s a solid investment, and with any luck other market participants will swoop in and start buying whatever is needed to hold our interest rates in the same place. Saves the Fed the trouble and the dollars.”
“So as long as people believe the Fed will buy enough debt to maintain interest rates, other markets do the work for us.”
“Give that man a cigar,” said Ben. Lopez smiled.
The hot board had been tracking the minute-to-minute movements of the 10-year U.S. Treasury bond since Li’s statement. The yield had moved up three basis points—three one-hundredths of one percentage point—to 6.154 percent. Within minutes of the Federal Reserve’s announcement, it had fallen to below its starting point and was trading at 6.11 points.
Lopez, now getting into the Saturday Night Football aspect of watching markets, said, “Fascinating. You guys countered Li’s move and the market overshot to your side. He gained three points and you took back about four and a half.”
“It’s the Coleman magic,” said the President. “He set up the play and executed it. And we’re going to get a little more tomorrow.”
Steinway cast a quizzical glance at the President. “What rabbit is Ben going to pull out of his hat tomorrow? If it’s about bonds, I think I would have known about it.”
Turner smiled. “This is family talent, George. Kind of like the Mannings, right? One brother quarterback for one team, the other brother calling plays for another.”
Ben could see unease growing on Hector’s face. “Mr. President,” he said, “the other team hasn’t signed a contract yet. And it won’t be for quarterback. Bernadette’s not going on the field. She’s going to stand at the fifty-yard line with binoculars and an earpiece. The actual quarterback is going to call her in the morning to confirm.”
Turner said, “She’s not going to say no, is she, Ben? If she does, I’m going to have to go back to charm school to hold this job.”
“Mr. President, your job is not about charm, it’s about power. And you wisely didn’t pull out the power play. She would have taken that as a challenge and, sir, you would have lost.” Ben put on his best grin. “No, sir, you charmed Bernadette.”
Hector said to Steinway, “She’s the best China analyst around. She and her father are a dynasty all their own, like the Ming. I’m going to call her first thing in the morning.”
“That should make for some interesting pillow talk,” said the President, a little too relaxed. In vino veritas sometimes meant too much veritas on the second drink.
Hector looked away to avoid the President’s gaze.
The screen showed the yield was up again, now shy of the starting point. Ben ignored the pillow talk line in favor of watching the action on the hot board.
“See, no Coleman magic,” he said. “We are right back to the starting point. No harm, no foul. This is the way all currency wars should occur.”
“That’s the way all wars should be fought,” said the President. Then he added, “Congratulations, Ben. It looks like the markets believed you. Credibility
is a great thing to have. We politicians certainly don’t have it. Maybe if I hang around you long enough, some will wear off.”
“Thank you, Mr. President. I’d like to claim credit, but the key was Governor Li’s statement that they would let their holdings of Treasuries wear off as they matured. That means that only about $30 billion or so would be dumped on the market in a given month. That is less than a third of what the Treasury is issuing to finance the deficit. No big deal.”
“Speaking of the deficit,” the President said, “I campaigned against it. Promised to eliminate it by the end of my second term. I should hope that the voters will forget that promise. All my predecessors have made the same promise and failed to follow through. I would like to think I’m a man of my word. The worst part of it is that we’re spending over $1 trillion on interest alone. If it weren’t for that we’d have something close to a balanced budget. I’m taking the political heat for a deficit that is paying for my predecessors’ shenanigans.”
“Sir,” said Ben, “in risk there is opportunity. If this conflict with China works out the way we want, we may be able to do something about it.”
“I’ll hold you to that Ben,” said the President, standing to indicate that the markets had become too boring to watch. “Besides, you’ve earned a good night’s sleep. Let’s chalk this one up to the home team.”
* * *
There was a group of men who were displeased over the American economic victory. They were government officials, the two dozen members of the Politburo of the Communist Party of the People’s Republic of China, gathered to watch the events unfolding in the market.
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