Currency War

by Lawrence B. Lindsey

  “And their internal political situation?”

  “So we now have a reasonable sketch about where the fault lines are forming within the leadership. Essentially it is party versus military. Most of the military, with the exception of Deng, continues to be against escalation. It would appear that Governor Li has aligned himself with them, or perhaps they have aligned themselves with him. If Li has Deng in the corner, and we think he does, then the military is now aligned against escalation.”

  “So where is their military going to come down in this situation?” asked the President.

  “From the point of view of the military, Li does represent expertise in economic matters and was on the right, if losing, side in cautioning against this escapade. So he has their respect. They know that the Party was gambling in an effort to get world dominance while they were still in office.

  “If the military is going to move against the Party and its apparatchiks, they will need expertise and a large portion of the senior bureaucracy to help them manage. The act of good faith in the release of young Mr. Deng is really a way of cementing the alliance between Li and the military.”

  The President nodded and pondered this for a moment. Then, “Your point of view, then, how does this play out?”

  “Sir,” Bernadette said, “I think this is a take-it-or-leave it offer regarding negotiating a truce. If I might ask Chairman Coleman whether Li offered a specific plan or is he expecting our side to offer something that is face-saving? Whether it is fully deserved or not, Li has enormous faith in the Chairman. Remember, he credits Coleman with asking that his wife and daughter be released.”

  “I deserve no credit,” said Ben. “The success in getting the goods on Deng was entirely thanks to CIA. It was Director Lopez’s assistant who was key. We are all grateful for him for having volunteered on his own initiative.”

  The President nodded. “We are all grateful for the CIA’s involvement in this, but what of Mrs. Coleman’s question? Who is coming up with the deal? Before you answer, let me say that I believe that my faith in you is fully warranted.”

  “Based on our call this morning,” Ben said, “I believe Li assumes the ball is in my court. He gave an effusive if backhanded compliment to your plan, sir.”

  The President said, “It was your plan Ben, and Li knows it. If I may finish your thought. He assumes that you have already come up with a plan and is asking you to lay your cards on the table. Do I have that right, Mrs. Coleman?”

  “Sir,” she said. “Your confidence in Chairman Coleman and that of Governor Li is fully justified. Although I have no direct knowledge of it, I am certain that Ben has already crafted a plan.”

  “And your advice?”

  “Sir, Li needs Deng Fei’s release to hold his side together. If he can do this, then they will prevail, and he will have all he needs to negotiate a face-saving way out of the mess. But if they cannot hold together, then the Party hardliners are going to turn this into some combination of a class struggle and a great patriotic war.”

  “A pretty stark choice,” the President said. “I conclude from what you said, Bernadette, you would be in favor of going forward with the deal that Ben seems to be carrying to us from Li. Hector, do you have anything to add?”

  “I think that Bernadette cut to the chase pretty well. I strongly suspect that after two days of painful and heavily nuanced internal debate, the CIA would come to the same position.”

  “Letting that bastard Deng go really sticks in my craw,” the President said.

  Ben nodded. “Mr. President, I concur. But compromises sometimes sting on both sides, and dammit, this one is ours.”

  The President looked at Eric Flynn. “Eric, what Ben said is true. And as much as I might enjoy thinking about Deng getting informal justice, I fully respect the constitutional rights we all enjoy. Still, the thought of signing a pardon for the bastard seems like an issue.”

  The Attorney General nodded. “Then let me give you some good news, sir. Deng Fei is a marked man on the international stage. We have his fingerprints. We have his retina scan. We have his DNA. Deng Fei’s days as a covert operative are over. Director Lopez will share those identity traits with anyone who requests them, and even those who don’t, so he won’t be able to operate anywhere without that nation’s government knowing exactly who he is and that he represents a potential high value hostage.

  “So I recommend you issue a conditional pardon, the condition being that he is never able to reenter the United States for the rest of his life. If he does, he ends up back behind bars facing an espionage charge. He won’t take the risk. And if he does, perhaps some future Attorney General could arrange for the Bureau of Prisons to make his stay particularly memorable.”

  “All right,” said the President. “A conditional pardon. But give the processing some time. Li will be here next Tuesday and should have the deal done by the end of the week—if there is to be a deal. Ben can tell Li that he has provisional approval, but that it will require a settlement of all outstanding issues.

  “But, Ben, all we have done so far today is agreed to a deal to let talks begin. What kind of deal are you and Li actually going to cut? What are they going to gain? What are we going to give up?”

  “Apologies, Mr. President. The call with Li ended ninety minutes ago, and I have been a little busy since then.”

  “Well, you’re the guy who talks about decision trees. I assume that you have plotted out all of the branches and what the response should be on each one.”

  “Sir,” said Ben, “the node of the tree we are now at is actually a random one. It will depend on things that I can’t control, and some things you can’t control. The real issue is how much freedom does Li have to make a deal and, quite frankly, how much leeway you give me in the negotiations.”

  “Let’s start with what I can control. What are the issues that you will need some leeway on?”

  “Mr. President, I need to know the various weights to assign your objectives in this negotiation. Let’s start with a peaceful outcome. Obviously, we could have a peaceful outcome, at least temporarily, if we acquiesce to everything the Chinese want. That is a non-starter, of course. There have to be substantive constraints on the outcome as well as perceptual constraints. The last is easiest.

  “The world is going to perceive the end of this conflict as having a winner and a loser. Sure, our rhetoric is going to be that we are both winners, but even if that is the case, that is not how it is going to be perceived or reported. With all due respect, my recommendation on where we want to end up would be for us to be perceived the magnanimous winner.”

  “How do we go about doing that?” The President asked.

  “With terms and conditions that not only are fair to China but, are perceived by China as being fair. Given the Chinese character, this is going nowhere if they don’t perceive themselves as having saved face. And only we can help them to save their face at this point. Ideally, by doing so we—or, more precisely, you—look magnanimous. This has been America’s traditional role.

  “Remember the saying, ‘America is the right country to lose a war to.’ Germany and Japan are two shining examples. So in a very real sense, the more magnanimous we are perceived to be, the higher the esteem in which America is held, and the more you will appear to be a winner.”

  “So,” the President said. “How do we win this thing and still come out looking like the proverbial magnanimous winner?”

  “Well,” said Ben, “the short version of my plan, should you approve it, would be to have the Chinese adopt a special gold coin just like ours. It would be denominated in yuan of course. From a perception point of view this fits in with the notion that imitation is the sincerest form of flattery.

  “From a substantive point of view, it would constrain the Chinese from attempting another currency war. They will no longer be able to print money to try and float their economy, or to try and undermine the dollar. This is going to bite on them. But it is also going to le
ad to a more stable global economy and a more stable trading relationship between the United States and China.”

  “All right,” said the President. “But what about those in our own country who are against our return to a gold standard? I don’t know if you’ve had time to look at the polling on this, but they’re out there in significant numbers.”

  Ben knew the phrase significant numbers was political speak for could influence the outcome of the next election. He chose his words carefully to assuage Turner’s concerns. “Sir, John Maynard Keynes famously called the gold standard a barbarous relic. But he did not say the same about gold. We are technically not going on a gold standard. Both China and America are free to manage their currencies as they see fit. If we continue to hit on that fact, it should have a soothing effect. At least one that would last long enough for our economy to improve and for enough antis to shift their opinion.”

  The President smiled. “Anything else we should know?”

  “We’ll need to work out the exchange rate between our two countries. Our gold coins are denominated in dollars, theirs in yuan. But since gold coins can always be swapped, if the yuan were to suddenly get really cheap relative to the dollar, people would sell yuan-based gold coins and buy the dollar-based version.

  “For the initial pegging they are going to have to pick an exchange rate that is lower than the one we now have, which is about fifteen to one. I haven’t done the math yet, but my suspicion is that Li is going to want twenty to one so that they can cover a bigger fraction of their currency and their banking problem. The cheap yuan will give them a temporary trade advantage. My instinct is to split the difference—say seventeen-and-a-half to one. This will make the gold coin value 7,000 yuan to the gram.

  “They could therefore issue 100,000-yuan coins that weigh about half an ounce. You will take some criticism from firms that compete with Chinese imports for letting them devalue. But they always have the choice of revaluation. Moreover, I think the result is going to be inflation in China, pushing their costs of production up, so any trade advantage is going to be short lived.”

  “Ben, you’ve given me another reason not to question you. You just spit out a mouthful for me to ponder.”

  “Sorry, sir.”

  “No worries. You did exactly what I asked you to do. I get where you’re headed. And I think you have the essential trade-offs about right.

  “So let’s start with the optics. America has to come out of this a winner; we need that perception. I like your construct of magnanimous winner. That was the America I grew up in and we were the envy of the world.

  “As to the precise details on the currency, I will leave that to your judgment and your negotiating skill. Unless I am missing something, your freedom of movement as a central banker is also affected by the deal you cut. So I think our interests are aligned. And I trust your judgment.

  “Do you have enough information from me to get your job done? If so, this meeting is adjourned. We will reconvene on Friday morning as Ben will have talked to Li the night before.”

  “Excellent,” said Ben. “Now if you’ll excuse me, I’ve got to prepare the team for our trip to New York. It’s going to be a big day.”

  * * *

  “This is it.” Bernadette handed him a travel mug filled with coffee. She intended for him to take it on the Acela, but knew he’d have it done by the time he arrived at Union Station.

  He took a sip and kissed her.

  “Worried at all?” she said.

  “I haven’t enough sense to be worried,” Ben said between sips. “If you mean, am I concerned about the variables that invariably come up during negotiations, let’s say it’s going to take a pretty stunning twist to catch me off guard.”

  “You pull this off,” Bernadette said with a grin, “and all those politicos over there in China will be calling you something other than Chairman Stud.”

  “As long as I lose the nickname, not the reputation.”

  “Fine with me.” They kissed again. “I should be there in time for our dinner with Li Xue.”

  “You’re sure you don’t want to come now? I could get you a seat.”

  “Too much to do. And you might be brilliant, but when you talk numbers it bores me to tears. Besides, I’ve got a couple of things to go over with Hector.”

  “Duty calls us both,” Ben said as the motorcade pulled up to his house. He picked up his briefcase and Bernadette hoisted up his overnight bag and walked with him to the limousine. She handed it to the driver and gave Ben a final kiss.

  “Go up there and make some history today.”

  “For you? Of course.”

  In a moment the motorcade was headed down the street with Bernadette still waving, knowing that her husband already had his nose in a newspaper. She turned and walked back to the house, having just enough time to pour herself a coffee and load up her own briefcase before her ride arrived.

  She was just putting the lid on her coffee when there was a knock at the door. It was early for anyone to stop by, but it wasn’t unheard of for Ben, with his head full of numbers, to have forgotten something and sent one of the chase personnel back to grab it.

  Opening the door, she saw a man in grubby overalls with a clipboard in his gloved hand. On the street was the blue Aqua Blue van, its engine rattling.

  “Sorry for the early hour,” the man said. “We’ve got a drainage problem with the pool two houses down and we’re going to have to turn the water off on the block for about two hours.”

  “That’s fine,” she said. “I’m leaving in a couple of—”

  But the man raised his hand, something yellow at the end of it and Bernadette thought Why is he pointing his drill at me, and then there was a click and she felt something snag the cloth over her belly. Then a rattling sound, one she hadn’t heard since her early days of training and her body went rigid and ceased to exist, as if her mind had been exiled to a distant part of the universe.

  She knew she’d been tased, just like in training all those years ago, but was unable to do anything about it, not even speak, even though she was aware of her groaning and the sound of the coffee mug hitting the floor.

  The man rushed forward and grabbed her before she could fall, another man behind her, picking up her legs, hustling her back down the hall, through the house with purpose like they knew the layout of the place.

  They put her down on the floor by the door into the garage.

  “Close the front door,” said the first man.

  She heard footsteps and the front door close. She tried to speak. It came out in a pathetic grunt and the man tased her again. Then he rolled her over and pulled her arms behind her back. He looped something over her wrists and another familiar sound as the zip tie tightened and clamped her wrists together.

  Make them tight, pal, she thought. The tighter the better.

  Footsteps returned and the first man said, “Tape her.” Another familiar sound, tearing, and then a strip of duct tape clamped over her mouth. Then, over her head, a pillowcase. It was clingy and rough against her skin. Straight out of the package from Walmart.

  The door opened. They picked her up and walked her into the garage, pausing as a finger punched buttons. The light in the garage came on, and then the garage door opened. She heard the gurgling of the Aqua Blue van as it approached, the sound intensifying as it pulled inside.

  They began to move again and now she heard the rear doors of the van open. They manhandled her up and dropped her on the floor, slamming doors behind her. The driver’s door opened and closed, and the van began to move. The first man, now driving, said, “Get the door.” Bernadette heard the garage door close and a moment later someone climbed in on the passenger side.

  “Perfect,” said a second voice.

  “Shut up,” said the first, and the van eased down the driveway, turning left into the street and moving ahead at a leisurely pace as if nothing in the world was wrong.

  Now Bernadette’s thoughts were spinning. Sh
e still couldn’t move, hurt terribly from being tased, twice, in doses stronger than she had experienced in escape and evasion training. But her mind still worked, was clear, remembering from experience that this was the worst thing about the experience. Tasing would be much more pleasant if you lost consciousness.

  She knew she had to turn on her internal recorder, try and time the drive between turns, estimate speed, figure out their route. And in between process. All those familiar sounds. The rattling of the taser, the ripping of the duct tape. The gurgling of the van’s engine, the Aqua Blue. Probably a target of opportunity, she thought, just stole it somehow, and nobody in the neighborhood would know any better.

  That and the way they carried her into the garage to load her into the van. Had backed the van in. This had all been planned to the nth degree. Professionals. The only question was who had taken her.

  But for now she had to keep that recorder running, keep her head clear. This was exactly what her escape and evasion teacher, Colonel Garrett, formerly of the SAS, had told her class on the first day. “There will always come a moment after your capture when you will feel regret. You will replay everything you missed, every hint you overlooked, every clue you misread. Don’t do it. You can’t afford it. The surest way to avoid that feeling is to follow the first and most important principal of escape and evasion. That is, not to get caught.”

  Well, I got caught, she thought as the van made a turn, another left. I just hope I have some time later for regret.

  CHAPTER TWENTY-TWO

  HECTOR LOPEZ WALKED OUT OF his office and said, “Is Bernadette Coleman here yet?”

  The woman temping for Bob Franks said, “Sorry, sir, I haven’t seen her. I thought she was going to go straight to the conference room.”