Installment 7.8.5: Deep State

Frank Spirochete was enjoying his meal.  The prime rib was superb.  The salad divine.

He was dining in the Leland Room of The Club.  The room was not very large and the eighteen diners completely filled it.  The Leland Room is steeped in traditions and courtesies.  By their nature, powerful men are proud and courtesy was developed by French kings so their noblemen would not kill each other off before doing battle with external enemies.

The Bay-Area industrialists invited Frank to The Club about six times a year. After the world-class dining the group held a round-table where they communicated their "concerns" to Frank.

Frank was wealthy enough and powerful enough to merit his own membership.  But Frank understood that he had a role to play.  The machine was larger than any one cog.  When the collective brain said "Shift!" the cogs aligned or else teeth were stripped and shafts were snapped.  Frank was sophisticated enough to realize that the "concerns" raised by the Bay-Area power elite were the "Shift!" commands of that collective brain.

The tiny portion of the news media that represented "the loyal opposition" thought that the industrialist's exerted influence via political contributions.  The real reasons were far more sinister.  Those industrialists designed, programmed and manufactured the voting booths used by Cali citizens.  The industrialists could deliver any margin of victory, or defeat, that they deemed profitable.

The industrial engine also financed Cali via employee "retirement" and "health savings accounts".  Employees rarely calculated their true, concrete "take-home" sans all of the future promises.  They were too busy working 16 hours a day.

Attendance at the Bay-Area round-table varied but had never been this robust.  Frank knew that something was up.

Pushing back the Crème Brûlée cheesecake half eaten, Frank ordered fresh coffee and a Hoyo de Monterrey Double Corona cigar. Like the cheesecake, Frank would only consume half of it.

Frank always ordered coffee because he knew he needed to keep his wits about him.

The room accommodated business titans who favored after dinner cigars or reefers.  The flooring was actually micro-cell ducting and a 0.2 m/s laminar air stream constantly flowed from the floor to the ceiling.  The patrons only need exhale in an upward direction and the smoke would never bother the other patrons.

"What's up?" Frank asked the man sitting across from him, Xiaopei (aka, Charlie) Liu.

Charlie, like all the other diners in the Leland Room was a titan of industry.  They were virtual gods within their own domains.  Charlie was the group's official spokesperson.  Charlie would speak.  Four others might chime in.  The remaining fifteen diners were their to ensure the message was delivered.

"The interest rates are killing us.  Make them go down." was Charlie's message.

Spirochete winced.  "I wish I could but we are behind the curve on this." he said.

"Stop bleeding hard currency.  Stop buying weapons systems.  Give us some relief on infrastructure." Charlie hammered.

Spirochete dissembled.  "I didn't think your businesses, in general" he said as he gestured around the room "were particularly vulnerable to interest rates."

"Most of them aren't." Charlie said.  "Most of our enterprises are high-end labor intensive rather than capital intensive.  But they still need infrastructure to get to work.  And brown-out issues means we lost most second-and-third shifts when solar is non-existent."

"Azrael's business is the only one that gets monkey-hammered by interest rates.  And that is only because of the sunk costs of finding new drugs and the amount of time it takes to get a promising drug to market." Charlie said.  It should come as no surprise that Cali was the world's leader in Botox and other biologically derived pharmaceuticals.

"Our customers are re-bidding work because we are missing deadlines." Charlie continued.

Frank scoffed, "It is wasted time on their part.  Nobody can compete with us."

"We," Charlie said while pointing at three separate diners "have already lost contracts.  To Texas. Gawd-dammed Wichita Falls, Texas if you can believe!"  Charlie looked like he wanted to spit.

"And here I thought this was going to be about the derivative blood-bath we just got through." Frank said.

Charlie said, "That is the next thing we were going to talk about.  Most of us are teetering on the brink.  We cannot survive the next major trigger point."

Spirochete perked up.  "What?  There was more than one wave of derivatives?"

Charlie chuckled with no mirth.  "There are three waves.  The next trigger is at 12%.  The reason we called this meeting is that we drifted past 10.7% and the deterioration is accelerating.  Unless you rein Bona-Brown in, we will all be in deep shit."

Spirochete buried his head in his hands.

"There is more."  Charlie said.  "You know that this entire dream is build on the backs and brains of thousands of highly talented 'skill' workers."

"They financed this venture.  They bought enormous amounts of forty year Cali bonds because they believed.  They thought they could create a better future for themselves and for all of the people living in Cali." Charlie continued.

"Most of those bonds now have thirty years of duration left. They lost 2/3 of their value when the interest rates went from 4% to 8%.  They stand to lose another 2/3 of their value if the rates go from 8% to 12%.  They will have lost 90 cents on the dollar." Charlie said.  "And they are mad.  And they feel cheated.  And they are sabotaging our productivity in a thousand different ways."

"What would you have me do?" Spirochete asked.  He had no idea things were this bad.

"Sue for peace." Charlie said.  "Stop the hemorrhaging.  Stop shopping for cruise missiles and tanks.  Start building power plants and bridges."

Spirochete was rubbing his chin, a habit he had when thinking furiously.  Frank was a lousy poker player.

"It is going to be almost impossible.  B-B is easy to manage when I can control his choices, but he has the bit in his teeth.  His anger is almost reptilian.  The best I can offer is that it will take a couple of months to distract him, and even then it is not a sure thing." Spirochete said.

Charlie said, "I am sure you will do your best.  We have other options if you fail, but it is better to not use them.  Remember...we start falling on our swords if the rate hits 12%.  We will not go down along.  Don't. Let. That. Happen."

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