This was where all the decisions took place in a nation that was the world’s most populous, had arguably the largest economy, and was the most powerful militarily. It was the official position of the Party that there would be no argument about these latter two points within the next couple of decades. China was to be the world’s sole superpower.
General Deng Wenxi was addressing the group, pointing directly at Governor Li Xue of the People’s Bank. “Comrades, we have squandered an opportunity out of pure cowardice. I sat in his office as Li gave advance warning of our intentions to his American counterpart. Our enemy. But it is not too late. Here is our chance to strike a death blow. To avenge all of the humiliations we have suffered at the hands of the Americans and other Westerners over the past two centuries.”
“Comrade General,” Li said, “the path we are on was approved by the Politburo. We did so in order to minimize the potential damage to our own economy….”
“Again, cowardice. And spoken like a true capitalist roader. Li, you have adopted the thinking of your profession. You have abandoned the teachings of Chairman Mao, who founded modern China. We are cowering like a bunch of old women afraid that we might lose some money! You bankers need to remember that power comes from the barrel of a gun, not a ledger book.”
Chairman Ren Xi Wu, the head of the Communist Party and president of the nation, decided it was time to move on from the personal theatrics. “General Deng, you said something about it not being too late. That we could still strike a death blow.”
“Comrade Chairman,” said Deng, “you heard what the American banker said, that we were going to liquidate our position gradually. That allowed him to claim that they would act to stabilize their interest rates and protect their economy. Our advance notice gave them time to prepare for our attack. And this so-called attack made the classic mistake about which all of China’s great military minds—from Sun Tzu to Mao—warned. When you attack you do so with overwhelming force so great that the enemy cannot resist. Let’s see if the American bankers can stabilize things if we up our sales by a factor of ten or twenty. If we act now we may have an advantage. The enemy has been lulled into complacency by the weakness of our actions so far. Let us surprise them with a full force attack.”
Chairman Ren looked at Li, acknowledging that it was his turn to speak. “Comrade Chairman, I know that I am not worthy to address this Politburo. I am here only to carry out your commands. But I do owe you my candid judgment. We are not in a strong position to launch a full force operation. Have you forgotten only last week troops in Beijing were forced to fire on crowds who were trying to get their money out of a bank—”
Deng interrupted. “Yes, and where are those crowds today? They got what they deserved and know not to come back for more. As I said, force, not money, is what works in this world and that is our Party’s founding philosophy.”
Li said, “Those bank runs can restart at any moment.”
Deng would have none of it. “Comrade Li—and I use that term very loosely, for I have my suspicions about your loyalty, something that extends to your daughter.”
Ren interrupted. “Comrade General, we should have no doubt about Li’s patriotism.”
“Comrade Chairman, that may be, but the counterrevolutionary thoughts of Li’s daughter are recorded. So, might I add, are the counterrevolutionary activities of others in her generation, some of whom are children of members of this Politburo. I am in charge of the security arrangements for the PLA, so I know of what I speak. The lack of party discipline within our families is something we must confront.”
Ren could sense the mood shift in the room. Deng had touched a very sensitive spot. The threat was hardly veiled at all—he would expose other members’ children if he had to. Ren could not let that happen. It would tear the Party apart and lead to a full-scale bloodletting.
“General Deng,” he said, “this is not an issue of patriotism or of family. Let us focus on the matter at hand. It is how to confront the Americans. I personally see some merit in what you are proposing.” Heads began nodding around the room. The consensus was clear if unspoken. Better to give Deng what he wanted than to open the families of the Politburo to disciplinary inspections.
“Governor Li,” Ren continued, “from what I understand you are liquidating our Treasuries at a rate of about $30 billion per month. Do we have the capacity to sell more than that? Can we sell ten or fifteen times that amount as General Deng suggests?”
“We can sell, or try to sell, as much as you order me to. At some point there will be such an imbalance of sales that the markets will freeze up and no transactions will occur.”
“What do you mean? We can’t just sell everything?”
“You have to understand that every time we sell, the price of what we sell goes down. If we sell, we are supplying bonds, so the price has to fall in order to attract buyers. Comrade Chairman, we must realize that when we sell, the price for everything we still hold will drop and we may lose money.”
“You are speaking of supply and demand,” Deng said. “Comrade Li, you sound too much the capitalist. Perhaps you have been a banker too long. We may lose a little money, but we will gain a huge victory. We will replace America as the world’s leading economic power.”
“Comrade General, we are in complete agreement on our desired endgame.”
“But Governor Li,” said Ren, “you said we might not be able to sell as much as we want. General Deng is correct, a loss on our bonds will be a small price to pay for victory. What you are saying is that we might not get that victory because we won’t be able to sell enough.”
“Every time we sell something there has to be a buyer,” Li explained. “When markets work well, there is always a buyer although the price may be a bit lower. But buyers must have a sense that they are buying at a price that won’t go down more in a few minutes. That would be a recipe for losing money, something capitalists do not like to do, and will be wary of. If it looks like we are going to keep selling, everyone will think the price will keep falling and in fear, no one will step in to buy.”
“Are you saying the market will not work?” asked Ren.
“Yes comrade. It will crash.”
“So much the better,” said Deng.
“Crashes cause many unintended consequences,” Li said. “We could find it difficult to engage in trade, sell our production, or buy the things we need from abroad.”
Ren nodded, having made his decision. “We have endured much in our long march to be the world’s dominant power. A little disruption in our trade with the rest of the world seems minor in comparison. Besides, after we vanquish the Americans and their capitalist system, we will be able to set whatever terms of trade we wish as the emperors did when China was the Middle Kingdom. Please proceed, Governor Li. If we must crash the market, then crash it we will.”
“Perhaps, Comrade General,” Li said. “But if markets are frozen then the ability to conduct international transactions will disappear for a time. World trade will come to a halt. As we are the world’s largest exporting economy, it will not be painless.”
“We recognize that,” said Ren. “This is the Politburo’s decision, not yours. As long as you faithfully execute this strategy you will not be held responsible for any unintended results. Might I suggest you begin executing this plan right after our markets close so as not to add needless disruption here?”
“Of course,” Li nodded, realizing that Ren was acting to protect the personal fortunes of the members present.
“Then we are agreed,” Ren said, a statement and not a question.
As the gathering dismissed, neither Li nor Ren could help but notice the grin and the rare chuckle that could be heard coming from Deng.
CHAPTER SEVEN
“LOGAN, I CAN’T EXECUTE THE order. No buyers.”
“Me either.”
“It’s like the board is frozen.”
Logan managed Citi’s bond desk in London. That meant until New York opened
, he was solely responsible for Citi’s $1.3 trillion bond portfolio. He could feel the bile rising in his stomach. In the last sixty seconds there had been no executions and the rules under which he operated were telling him that he had to liquidate as many positions as possible. If the prices on the screen were accurate, Citi was now out more than $25 billion over the last few minutes.
If this went on much longer, Citi would technically be broke. Despite that, Logan was not thinking about his career being over. A native of Canada, he liked living here with his family. Citi’s offices were in Canary Wharf, an extension of the City of London that had grown exponentially. London was now the trading hub for this time zone, and it was ideal. It opened an hour before Asia closed and closed two hours before America opened. He was thinking the careers of more than half of the three hundred people on the floor were over.
Visions of people carrying personal effects out of Lehman that horrible weekend flashed through his mind. And it wasn’t just going to be Citi. The same thing was happening at Morgan-Chase, at Bank of America, and all the rest.
He picked up the phone to call the head of asset allocation for the bank. He knew in his head what was supposed to happen next. The CEO would be informed. He would place a call to the president of the New York Federal Reserve Bank. The Fed would step in as the buyer of last resort. In the end, they would make a market. It wasn’t like you were going to have a real buyer and a real seller. There would be only one buyer—the Fed. And they were literally going to print the money to do the buying.
It wasn’t really printing, of course. It was the electronic version. The Fed could print $1 for every $1 of bonds it had in its portfolio. They would keep buying and keep printing until the market calmed down. Then would come the unwind, which could take months or years.
Then Logan could hear a scream.
“What the fuck!”
He glanced up at the huge screen mounted above the trading desks. There was no volume—nothing being traded. The prices being quoted were five to six percent below where they had been an hour ago. It wasn’t $25 billion anymore; it was more than twice that amount. Citi was about to go below its minimum capital requirement. Unless something happened, they were going to have to begin taking the first steps to unwind the bank.
The depositors would get their money back. The politicians wouldn’t let Grandma lose her life savings. But she would be paid back out of freshly printed money.
* * *
Ben’s cell phone rang on the table next to his bed. All he could think was, What time is it? When he saw four-seventeen on the screen he knew there was trouble.
It was Peggy. “I have Governor Adams on the line.”
“Good morning, Ben. Sorry to disturb you but we have a bit of a problem.” Ben could hear the classic British understatement in John Adams’s voice. As head of the Bank of England, John took his share of ribbing about being the namesake of a great American revolutionary. “Trading here in London has virtually ceased in the Treasury market, and the spillover into equities and futures is beginning.”
Ben sat up. “What the hell happened?”
John replied, “Best we can tell, the Chinese started dumping everything they could after their market closed. And I mean dumping. Never seen anything like it in terms of sell orders. Markets froze up within two minutes.”
“But Li said they were going to let the bonds run off.”
“My hunch is he was overruled. MI6 sent me a heads up that the Politburo met most of the day in Beijing. The limos began scampering to their home bases around two Beijing time. Li probably didn’t have much time to order some refined move, likely just said, ‘sell’ and his minions sold. The PBOC must have coordinated with the other big Chinese holders of U.S. Treasuries. It was unified. No pretense of multiple actors. If I were a military man, I would call it an attack of overwhelming force.”
“Sounds like Deng,” said Ben. “You heard about my little episode in Beijing last week? Soldiers firing point-blank into a crowd of people who simply wanted their money. That guy is evil, pure and simple.”
“MI6 briefed me on him as well. Speaking of which, you may want to wake up the division of MI6 lying next to you. Sorry, but she is still very much missed over here. Lost to a great guy of course. I will let you get on with it.” Ben could hear the click on the other end.
“Trouble in paradise,” Bernadette said, stirring under the covers.
“You might say that. All hell is breaking lose. John Adams sends his regards by the way. Says you are still missed.”
“I heard Deng’s name. That woke me up. He is the stuff of which nightmares are made. May as well get up, too, sounds like we are both going to be on duty today. Let me get the coffee. You’re going to be more pressed than I am.” She gave him a kiss on the cheek, donned her robe, and headed downstairs.
Ben called Peggy back. “Call Lorianne at CNBC. Tell her I want on Squawk Box at seven sharp. I’ll go straight to their D.C. studio on Massachusetts Avenue. Better book me for twenty minutes including Q&A. And do be blunt. If she can’t deliver, I will go straight to Maria Baritromo. I’ll start calling folks from the car.”
Yes, he thought, it was going to be one of those days.
* * *
Ben’s mini motorcade pulled up promptly at six. Departure was scheduled for six-fifteen but getting there early was part of protocol. Ben knew he would get to the studios on Massachusetts Avenue by six-forty and have plenty of time for makeup.
Bernadette gave him a kiss on the cheek, a sign she was worried about him. His hormones were already flowing as the testosterone was kicking in for combat. She didn’t need to add any additional stress to his system, even of the pleasurable variety.
As he got in the back seat, he sensed immediately that there was something on his driver’s mind. Anthony had been driving him since he started on the job and Ben always made it a practice to befriend whoever was in the front seat. His life was dependent on the driver, not only for safe driving but in the event he might end up taking a bullet for him.
“Anthony, how are you this glorious Monday morning? Everything okay?”
“Well Mr. Chairman, I don’t usually ask work questions, but I am a bit worried. Had the news on driving out here and they said something about the banks failing. Is my money safe?”
Ben said, “I guarantee it. You have nothing to worry about. And I should know, right?” Reassurance seemed like the best step. Volunteering details might only worry the man.
“Funny thing, Mr. Chairman. Here it is only five-thirty and there were two or three people at just about every ATM I passed. Don’t you think it’s a bit strange?”
“Those people don’t have anything to worry about either.” A little follow up at this point seemed harmless. “What exactly did they say on the news?”
“Something about the banks losing a lot of money overnight and that they didn’t have enough left. Something about meeting capital requirements. I’ve heard it enough driving the last twenty years and should know what it means. Isn’t it like they don’t have enough money?”
Ben decided it was time for candor. “They have enough to pay everyone back, but we require them to have a little extra on top of that. Our job at the Fed is to lend them cash to cover any shortfall while they are selling what they need to sell. They’re not going to run short. The Fed will make sure of that. In the unlikely event that they do run short, your deposits are guaranteed up to $250,000.”
“I’m a little shy of that,” Anthony said. “But maybe I’ll drop by an ATM while you’re in the studio to get a couple of hundred. In case.”
Ben knew this response. It was the very part of human nature that drove those bank runs in Beijing. Folks wanting a little extra cash at first. When more people line up, they decide to get their money out while they can. The crowds intensify and so does the amount each depositor wants.
“God help us all,” was all Ben could mutter under his breath.
“What was that, Mr. Chairman?”<
br />
Ben said, “Nothing. Just playing over the interview I’m about to have. Gotta figure out what questions they’re going to ask.”
“Don’t know how you do it, sir.”
“Sometimes,” said Ben, “neither do I.”
* * *
General Deng was still smiling. He couldn’t help it. No, he gloried in it. He felt he was presiding over the ultimate feast, a victory parade, the greatest celebration his nation had ever known.
He and his comrades were watching CCTV, the state-owned and -controlled link to the rest of the world. The screen showed chaotic trading in London with worried brokers and investors staring up at the electronic tickers. They zoomed in on some with tears in their eyes.
The screen switched to live scenes from New York, a montage of shots outside the branches of Citi, HSBC, and Morgan-Chase. The doors weren’t open as it was still before seven in the morning in New York, but crowds were forming at the ATMs.
“Wait until one of those machines runs out of cash. Then the fun will really begin.” His broad smile afforded the others a view of his badly stained teeth from decades of tobacco use and insufficient attention from a dentist, but he clearly didn’t give a damn about it.
“Comrade General, your plan seems to be working out precisely as expected.” It was one of his sycophants. Deng didn’t tolerate contradictions or those who made them. He preferred not to retaliate against critics right away, but merely smiled as if he were taking it all in. But inside his head would be visions of a mangled body, preferably still alive. Watching the prolonged agony was one of the true joys of his life. Revenge was a dish best eaten cold, and Deng had no problem going back for second or third helpings.
An aide came into the room and handed Deng a note. “Chairman Coleman is about to go on television. This should be particularly entertaining. Not even his wife can help him out of this one.”
Targeting Bernadette was the key. She and her father had been a pain in the side of the state since the late 1960s. Ben was an afterthought. He had become a subject of interest when he married her. Deng had personally chosen Zhang Jin from a lineup of five similar agents. Inspected them each up close. It was not out of sexual interest. His preferences ran in other directions. He wanted to see how each showed fear: the look in their eyes, the smell coming from their sweat, the sound of their breathing.
Currency War Page 12