The Loyal Nine

by Bobby Akart

  Sarge observed the room. Let’s call on Mr. Mantega. Mantega’s grandfather was the former Brazilian Finance Minister.

  “Mr. Mantega, how does a nation devalue its own currency?” asked Sarge.

  “There are three ways to devalue your own currency,” said Mantega. “Using the U.S. dollar as an example, the Federal Reserve can sell dollars and purchase other currencies, like the Chinese renminbi. Technically, that wouldn’t happen, because the two countries no longer have an exchange rate cooperation agreement, but it’s just an example. Second, the Fed could print money. The term they like to use is quantitative easing. Really, it means they’re flooding the world economy with newly minted dollars. By creating a large supply of USD, the demand for the dollar goes down and so does the value. Third, a central bank can lower its interest rate to near zero. Finally, our government officials can discourage currency manipulators from speculating on the dollar by trash-talking our own dollar.”

  “Very good, Mantega,” said Sarge. “A government will purposefully devalue its currency in order to stimulate economic growth within its borders. It does so at the expense of other nations’ productivity and the risk of increased inflation, which places a burden on its own citizens. How does that make you feel?”

  “Sounds pretty sketchy to me,” said Mr. Lin. Sarge and the class laughed with Lin.

  “I agree with Mr. Lin; this activity sounds sketchy to me as well,” said Sarge. “Yet it happens every day on the world stage as governments compete with each other for that almighty dollar, or the renminbi, as the case may be.” Sarge switched the slide.

  BEGGAR THY NEIGHBOR

  “This phrase was coined by the famous political scientist and economist Adam Smith, whose classic treatise The Wealth of Nations earned him the title as the father of modern economics,” said Sarge. “Smith stood for free trade and laissez-faire economics—transactions should be between private parties thus free from government interference, such as regulations and taxes. Smith coined the phrase beggar thy neighbor as a policy through which one country attempts to remedy its economic problems, without regard to the economic problems created in another country.

  “In the context of global governance, can you see how the interaction between nations can be complicated by a currency war?” asked Sarge rhetorically.

  The students nodded their heads affirmatively.

  “Smith’s beggar thy neighbor theory can also be applied to international trade,” said Sarge. “In this presidential campaign, a significant amount of dialogue has centered around the trade deficit the United States has with China. One candidate in particular wants to levy an import tax on Chinese goods. His theory is that American goods would become more competitive, because the price of Chinese goods would be too expensive with the added import tax.”

  “Mr. Lin, does that sound sketchy to you?” asked Sarge.

  “If I were his boss, I would say you’re fired!” replied Lin to a round of laughter. “An import tax on Chinese goods would raise the price to Americans and result in inflation. Plus, the Chinese would not sit still and take it. I expect they would retaliate in kind.”

  “You’re right, Mr. Lin,” said Sarge. “In such a scenario, the United States would make the first move in a trade war and enjoy a modicum of success initially. But China would eventually react, leveling the playing field to protect the domestic and economic welfare of its country.”

  “What started as a run-of-the-mill currency war has now escalated into a trade war as well,” said Sarge. “What could happen next?”

  There were no volunteers to answer this question.

  “I will submit to you in this geopolitical climate, currency wars can lead to trade wars. Trade wars often lead to hot wars,” said Sarge. “When two opposing global powerhouses—bulls, if you will—butt heads repeatedly over currency manipulation and trade embargoes, the next step could be asymmetric warfare, which might include military action.”

  Sarge changed the slide.

  GEOPOLITICAL FOES

  “In the 2012 election, Mitt Romney famously said that America’s biggest geopolitical foe was Russia,” said Sarge. “He was widely criticized by the President and the media for making such a statement. I believe the President’s words were ‘the 1980s are now calling to ask for their foreign policy back because, you know, the Cold War’s been over for twenty years.’ How many of you believe we have entered a new cold war with the Russians?”

  Most of the class raised their hands.

  “Mr. Mann, tell me why you think a cold war exists with Putin,” said Sarge.

  “Once the Russians took control of Crimea and extended its military reach into Ukraine, the relationship between our two countries hit rock bottom,” said Mann. “The Russians have now threatened the Baltic States militarily, and even alluded to the use of nuclear weapons if another country interfered with their attempts to reunify the former Soviet Union.”

  “Mann has touched on just a few of the most noteworthy events,” said Sarge. “There have been sightings of Russian nuclear submarines throughout the waters surrounding Europe. Recently, Russian intelligence ships have docked in Havana, Cuba. Their long-range bombers are routinely observed in the Caribbean and within international waters of the Gulf of Mexico. Sounds a lot like the Cold War to me.

  “How many of you believe the Russian economy has been badly damaged by United States-led sanctions and the falling price of oil?” asked Sarge.

  The class was unanimous in agreement.

  “Should the economic conflicts between the United States and Russia continue to inflict damage on the Russian people, I believe tremendous political pressure will be placed on Putin to react,” said Sarge. “If Russia doesn’t have any economic bullets to fire at us, they will either enlist the assistance of their new ally—China—or they will consider other, more serious forms of retaliation.

  “This is how economic wars based upon currency and trade can escalate into a military conflict. Typically, belligerent nations will exercise restraint. However, the current geopolitical conflict between Russia and the United States could become an asymmetric war of epic proportions.”

  Chapter 45

  March 25, 2016

  Senate Intelligence Briefing

  Washington, D.C.

  Abbie patiently awaited James Clapper, director of National Intelligence, and Admiral Mike Rogers, director of the National Security Agency, to appear in the secure briefing room on the lower level of the Capitol Visitor Center. It was almost 4:00 p.m. and nearly two-thirds of the chairs in the room were empty. Most of her colleagues on the Intelligence Committee had opted to catch flights home for the two-week Easter recess, instead of attending what they assumed was a routine briefing.

  “Hi, Senator,” whispered Katie O’Shea. “It’s so nice of you to join the other nine senators who give a shit about what I’ve got to say. Nice bag, is that a Gucci Aviatrix?”

  The women laughed together. Abbie and Katie had become close friends since Abbie’s arrival in Washington. Although the two couldn’t socialize publicly, they shared many evenings in Abbie’s Georgetown townhouse, watching movies and sharing bottles of wine. Abbie loved Katie for her bluntness—and the stories of her sexual escapades. Abbie called her life The Fifty Shades of Katie O’Shea.

  “I expected you to skip this today,” said Katie. “Shouldn’t you be campaigning? I would have brought you up to speed.”

  “My campaign manager says I need to attend all Intelligence Committee meetings and functions,” said Abbie. “She doesn’t want me to get Kay Hagan’ed”

  Abbie was referring to former senator Kay Hagan of North Carolina, who was criticized during her failed senate reelection bid because she missed numerous Armed Services Committee hearings.

  “Yeah, makes sense,” said Katie.

  “What are you doing here?” asked Abbie.

  Katie was a rising star in the national intelligence community. Through some assistance, she was elevated to a high-level sec
urity clearance within the recently formed National Insider Threat Task Force. The NITTF was formed as a rapid-response agency to address high-profile incidents, such as the Fort Hood shooting, the Wikileaks debacle and the explosive Edward Snowden revelations. After years of focusing on outside threats to the nation’s security, the federal government had finally turned inward, utilizing a broad range of technologies and counterintelligence strategies to root out spies, terrorists or leakers. The NITTF was despised within the intelligence community, having dropped the see something, say something directive in every department’s lap.

  “Well, you get to watch me in action today,” said Katie. “Director Clapper wants me to brief the Senate Intelligence Committee on a matter that has come to our attention. This information was verified earlier in the day. Director Clapper and Admiral Rogers will declare this meeting classified, and the press will be removed so the senators may ask questions without fear of media spin or intrusion.”

  “About time,” said Abbie. “It should always be that way. Why did they delay the briefing until four?”

  “This is going to be a fairly big news story, which is why they waited until late Friday afternoon before the Easter recess, when most of D.C. has left town,” said Katie. “Plus, they wanted all major markets to be closed for the announcement.”

  “What’s going on?” asked Abbie.

  Director Clapper approached the microphone, and everyone scrambled to take their seats. Katie pulled away to take her seat at the front of the room, but leaned back quickly to whisper something to Abbie.

  “Your dad’s not going to be happy.”

  Chapter 46

  March 25, 2016

  73 Tremont

  Boston, Massachusetts

  John Morgan carefully reviewed the last of the reports provided to him by Donald Quinn. He made notations on the reports, which focused on the European financial situation. Political tensions had begun to boil over in the Eurozone, signaled by several new breaking points identified by direct sources and painstaking analysis. There were new rifts in an already broken alliance.

  Germany had reached a critical decision point. The nation had carried the Eurozone economically and politically since its inception. The anticipated European Central Bank (ECB) announcement of yet another round of quantitative easing could cause the euro to spiral downward and push Germany back to the deutsche mark.

  Germany’s strongly articulated position against QE put them at odds with the French. France’s left-leaning politicians had been extremely vocal in their support of more quantitative easing by the ECB. They considered a weak euro to be critical to their economic survival. The far-right Front National party, which made a resurgence in the wake of renewed French nationalism, vowed to take action to restore France’s independence from the Eurozone if the ECB devalued the currency to the point of an inflation nightmare. A break from the Eurozone was a long shot, but just the talk of it made the rest of Europe nervous. The more anxiety, the better.

  On the opposite side of the spectrum, Europe had its leeches, as Morgan liked to call them—Greece, Spain and Italy. Unwilling to adopt austerity measures, they were doomed to economic failure. It was only a matter of time. No level of International Monetary Fund intervention could prevent the inevitable. The IMF was a speed bump on the road to financial ruin for the leeches. An environment of low growth and high unemployment had bred support for radical political alternatives, few with any basis in rational, constructive nation building. Societal unrest in these three countries made the headlines daily, and would only get worse.

  Morgan contemplated the practical aspects of the Eurozone’s collapse. The demise of the euro would not resolve the problems associated with the U.S. government’s excessive national debt. The Eurozone was a major trading partner of the United States, so the implosion of the euro would undoubtedly produce a period of economic pain and instability. He projected five years—long enough for companies and governments to pick up the pieces. It was a small price to pay to liberate the European markets from the old-world European oligarchs whose fortunes and interests currently held Europe hostage. Serves them right.

  He recalled a statement Winston Churchill made prior to the start of the Second World War. The era of procrastination, half measures and delays is coming to a close. In its place we are entering a period of consequences. A collapsed Eurozone would have particular consequences for United States financial institutions that had financed European banks through low-interest money. Morgan scribbled a note on his pad, which read turn off the spigot. The intercom buzzed on John Morgan’s desk.

  “Yes, Malcolm.”

  “Mr. Morgan, Secretary Lew on the line for you,” said Malcom Lowe.

  Morgan pushed the button to activate the speakerphone. This is unexpected.

  “Hello, Jack, you’re on speakerphone, but we are alone,” said Morgan. “How are you?”

  “Very well, Mr. Morgan,” said Jack Lew, the Secretary of the Treasury. “I will get right to the point. I have some disturbing news for you.”

  Morgan sat back in his chair and rubbed his temples. “Go ahead, Jack.”

  “I’m sure you are familiar with the National Insider Threat Task Force—the NITTF,” said Lew without waiting for a response. “They just completed a briefing of the Senate Intelligence Committee. There’s a leak in the Treasury Department, affecting the Federal Reserve.”

  “Jack, what is it?” asked Morgan abruptly.

  “We believe someone within the Treasury is going to leak the details of the Federal Reserve System’s balance sheet,” said Lew. “It’s all going to come out, but we just don’t know how yet. There have been cryptic messages from the hacker group Anonymous. They claim to be acting on behalf of the audit the fed crowd.”

  “Is the good senator from Kentucky behind this?” asked Morgan.

  “We don’t know anything for sure at this point, Mr. Morgan. He stands to benefit the most, because he made this a major platform issue in his presidential campaign,” said Lew.

  “The balance sheet, huh? Break it down for me, Jack,” said Morgan.

  “The liabilities of the Federal Reserve are eight point seven trillion dollars,” said Lew. “This is nearly double the figure the public normally hears.”

  “That doesn’t surprise me,” said Morgan. “I assume you have worse news?”

  “The assets of the Fed are an even bigger issue,” said Lew. “Over half of the Fed’s assets are mortgage-backed securities acquired after the 2008 crisis. These securities are backed by distressed home loans, car loans and near worthless derivatives.”

  “What are the total assets?” asked Morgan.

  “Approximately forty-nine billion,” said Lew. “That’s about half of the commonly assumed estimates.”

  “Of course. So, the Federal Reserve is currently leveraged at a ratio of two hundred to one?” asked Morgan. “Half of those assets are worthless? Is that correct?”

  “Yes, sir,” said Lew.

  Morgan remained silent as he contemplated the revelation. The only way to increase the assets of the Fed was to print an inordinate amount of dollars and hold them on their balance sheet. They wouldn’t become Fed liabilities until they were put into circulation. If the Fed were to pump that much money into the money supply, inflation would skyrocket.

  “Are you going to issue more currency?” asked Morgan.

  “It’s our only option at this point,” said Lew. “There is one additional problem.”

  “I can’t wait to hear about it,” said Morgan with a tone of incredulity. How can these people be so incompetent?

  “It’s the gold number sir,” said Lew. “It is commonly assumed the Federal Reserve has slightly over two hundred billion dollars in gold reserves.”

  “What’s the real number,” asked Morgan.

  “Twenty-three billion,” said Lew.

  “Goodbye, Jack.” Morgan disconnected the call.

  “Malcolm,” he barked into the intercom, “get me Kat
ie O’Shea immediately!”

  Morgan gripped the arms of his chair like a patient at the dentist’s office with no anesthesia. Disclosure of the truth regarding the Federal Reserve would devastate the markets worldwide, bringing an end to the secrecy enjoyed by the shadow bankers in this country—like Morgan and his associates. The buzz of the intercom interrupted his angst.

  “Sir, Miss O’Shea on the line as requested,” said Lowe.

  Morgan slapped the phone to accept the call.

  “Miss O’Shea, why did I have to hear about this from that do-nothing Lew?” asked Morgan brusquely.

  “I am sorry, sir, but I was in Director Clapper’s office during the entire briefing, and was unable to make any calls,” apologized Katie.

  “Tell me everything you know,” said Morgan.

  “First, let me summarize the facts,” said Katie.

  She explained the discovery of the leak and the details of the data obtained. She also assured him all law enforcement and intelligence agencies were working on this investigation around the clock.

  “Do you have a working theory, Miss O’Shea?” asked Morgan.

  “Sir, Director Clapper is of the opinion—” started Katie, before Morgan interrupted her.

  “No, Miss O’Shea, if I wanted Clapper’s opinion, I’d call him myself,” said Morgan. “Tell me what you think.”

  “Yes, sir,” said Katie. “I have not discussed my premise with anyone.”

  Morgan had been impressed with Katie’s astute analysis in the past. She had the ability to see situations differently than her counterparts, and was truly a valuable asset.

  “Although my primary responsibilities with the National Insider Threat Task Force deal with internal investigations of intelligence personnel, I have access to information gathered by other agencies within the intelligence apparatus,” said Katie. “This week, while coordinating on a matter with the Cyber Threat Intelligence Integration Center, I stumbled onto something that might be related. Certainly you are familiar with the hacker group Anonymous?”