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  The economy was on a roll. The stock market was at an all-time high. It was business as usual for his administration. Instead of reducing the growth in government spending, he launched an immoderate bank lending stimulus package, corporate bailouts, mortgage-backed securities bailouts, and another extravagant round of his pet “infrastructure building” programs in inner city areas as well as in Iraq and Afghanistan.

  In Europe, international bankers began to vocally express their doubts that the U.S. government could continue to make its interest payments on the burgeoning debt. In mid-August, the chairman of the Deutsche Bundesbank made some “off the record” comments to a reporter from The Economist magazine. Within hours, his words flashed around the world via the Internet: “A full-scale default on U.S. Treasuries appears imminent.” He had spoken the dreaded “D” word. His choice of the word imminent in conjunction with the word default caused the value of the dollar to plummet on the international currency exchanges the next day. T-bill sales crashed simultaneously. Starting with the Japanese, foreign central banks and international monetary authorities began to dump their trillions of dollars in U.S. Treasuries. None of them wanted the now risky T-Bills or U.S. bonds. Within days, long-term U.S. Treasury paper was selling at twenty cents on the dollar.

  In short order, foreign investors at all levels began liquidating their U.S. paper assets—stocks, bonds, T-bills—virtually anything denominated in U.S. dollars. After some halfhearted attempts at propping up the dollar, most of the European Union nations and Japan announced that they would no longer employ the U.S. dollar as a reserve currency.

  To help finance the ever-growing debt, the Federal Reserve decided to make a tactical move. It began monetizing larger and larger portions of the debt. The Fed already owned $682 billion in Treasury debt, which was considered an “asset” for the purposes of expanding the money supply. In just a few days, Federal Reserve holdings in Treasury debt more than doubled. The printing presses were running around the clock printing currency. The official domestic inflation rate jumped to 16 percent in the third week of August. To the dismay of the Fed, the economy refused to bounce back. The balance of trade figures grew steadily worse. Leading economic indicators declined to a standstill.

  In reaction to the crisis, the lawmakers in Washington, D.C. belatedly wanted to slash Federal spending, but were frustrated that they couldn’t touch most of it.

  The majority of the budget consisted of interest payments and various entitlement programs. Previous legislation had locked in these payments. Many of these spending programs even had automatic inflation escalators. So the Federal budget continued to expand, primarily because of the interest burden on the Federal debt. The interest payments grew tremendously as interest rates started to soar. It took 85 percent interest rates to lure investors to six-month T-bills.

  The Treasury Department stopped auctioning longer-term paper entirely in late August. With inflation roaring, nobody wanted to lend Uncle Sam money for the long term. Jittery American investors increasingly distrusted the government, the stock market, and even the dollar itself. In September, new factory orders and new housing starts dropped off to levels that could not be properly measured. Corporations, large and small, started massive layoffs. The unemployment rate jumped from 12 percent to 20 percent in less than a month.

  The catalyst for the real panic, however, was the stock market crash that started in early October. The bull stock market had gone on years longer than expected, defying the traditional business cycle. Nearly everyone thought that they were riding an unstoppable bull. From fifteen to twenty billion in new mutual fund money had been pouring into the stock market every month.

  The mutuals had become so popular that there were more mutual funds listed than individual stocks. By 2009, there were 240,000 stockbrokers in the country. It was the 1920s, in déjà vu. Just before the Crunch, the Dow Jones Industrial Average was selling at a phenomenal sixty-five times dividends—right back where it had been just before the 2000 dot-com bubble explosion. The market climbed to unrealistic heights, driven by unmitigated greed.

  Soon after the dollar’s collapse, however, the stock market was driven by fear. Unlike the previous crashes, this time the U.S. markets slumped gradually.

  This was due to circuit breaker regulations on program trading, implemented after the 1987 Wall Street slump. Instead of dropping precipitously in the course of one day as it had in ’87, this time it took nineteen days to drop 7,550 points. This made the dot-com “bubble burst” in 2000 look insignificant. Nobody could believe it. None of the “market experts” thought that the market could go down that far, but it did. Only a few contrarian analysts predicted it.

  Finally, the government suspended all trading, since there was almost no one buying any of the issues that came up for sale.

  Because all of the world’s equities markets were tied inextricably together, they crashed simultaneously. The London and Tokyo markets were hit worse than the U.S. stock exchanges. The London market closed five days after the slump started. The Tokyo market, which was even more volatile, closed after only three days of record declines. Late in the second week of the stock market collapse, the domestic runs on U.S. banks began. The quiet international run on U.S. banks and the dollar had begun a month earlier. It took the GDP—the “generally dumb public”—in America that long to realize that the party was over.

  The only investors that made profits in the Crunch were those that had invested in precious metals. Gold soared to $5,100 an ounce, with the other precious metals rising correspondingly. Even for these investors, their gains were only illusory paper profits. Anyone who was foolish enough to cash out of gold and into dollars after the run up in prices would have soon lost everything. This was because the domestic value of the dollar collapsed completely just a few weeks later.

  The dollar collapsed because of the long-standing promises of the FDIC.

  “All deposits insured to $200,000,” they had promised. When the domestic bank runs began, the government had to make good on the promises. The only way that they could do this was to print money—lots and lots of it. Many Americans were already leery of Federal Reserve Notes due to successive waves of changes in the large portrait currency that began in 1996.

  Strange new money tints caused a subtle change in the American psyche. The paper money didn’t look right. It looked phony. And, in essence, it was.

  Since 1964, the currency had no backing with precious metals. All that was backing it was empty promises. Rumors suggested, and then news stories confirmed, that the government mints were converting some of their intaglio printing presses. Presses originally designed to print one-dollar bills were converted to print fifty and one-hundred dollar bills. This made the public even more suspicious.

  With the printing presses running day and night turning out fiat currency, hyperinflation was inevitable. Inflation jumped from 16 percent to 35 percent in three days. From there on, it climbed in spurts during the next few days: 62 percent, 110 percent, 315 percent, and then to an incredible 2,100 percent.

  The currency collapse was reminiscent of Zimbabwe, just a few years earlier.

  Thereafter, the value of the dollar was pegged hourly. It was the main topic of conversation. As the dollar withered in the blistering heat of hyperinflation, people rushed out to put their money into cars, furniture, appliances, tools, rare coins—anything tangible. This superheated the economy, creating a situation not unlike that in Germany’s Weimar Republic in the 1920s. More and more paper was chasing less and less product.

  With a superheated economy, there was no way for the government to check the soaring inflation, aside from stopping the presses. This they could not do, however, because depositors were still flocking to the banks to withdraw all of their savings. One radio talk show host described this situation as “watching a snake eat its own tail.”All that the bureaucrats in Washington, D.C. could do was watch it happen. They had sown the seeds decades before when they started deficit
spending. Now they were reaping the whirlwind. The workers who still had jobs quickly caught on to the full implications of the mass inflation. They insisted on daily inflation indexing of their salaries, and in some cases even insisted on being paid daily.

  Citizens on fixed incomes were wiped out financially by the hyperinflation within two weeks. These included pensioners, those on unemployment insurance, and welfare recipients. Few could afford to buy a can of beans when it cost $150 dollars. The riots started soon after inflation bolted past the 1,000 percent mark. Detroit, New York, and Los Angeles were the first cities to see full-scale rioting and looting. Soon, the riots engulfed most other large cities.

  • • •

  When the Dow Jones average had slumped its first 1,900 points, Todd Gray made his “mobilization” calls to the six members of his retreat group still living in the Chicago area. He followed up with a multiple-addressee e-mail message.

  There was no need to call Kevin Lendel. He had been coming over for dinner and extended conversations for the past three evenings. Most of the group members agreed to attempt to make their way to the Grays’ home in Idaho as soon as possible.

  The only voices of doubt came from the Laytons and Dan Fong. When Todd first called Dan—before his trip back for the accounting firm meeting—

  Dan listened to his full spiel, and then remarked, “Yeah, Todd, remember what you did right after the 9/11 terrorist attacks?You went positively ape. You were Chicken Little, and the sky didn’t fall, now did it? I remember the ‘emergency meeting’ that we had at T.K.’s. You were really panicky. You even had Mary loading magazines from stripper clips during the meeting, as I recall. Now how do you know this isn’t just another false alarm?”

  Dan’s doubts disappeared a few days later when he was on his way to work. He slowed down when he saw a queue of people stretching a full block. It ended at the doors of the First Chicago Bank on Columbus Avenue. “Oh maaaan,” he commented aloud to himself, “It’s six o’clock in the morning, and they’re already lined up. This looks way serious.” He remembered that bank lines were one of Todd’s touted “warning signs.”

  Turning the corner, Dan had to stop and gawk, along with several other drivers. A man was smashing an ATM machine with a tire iron. The machine was obviously either out of cash or had been shut down by the bank. The man was still in the process of venting his rage with the tire iron when Dan drove away. The food rush started that same day. Supermarket shelves were completely emptied in a coast-to-coast three-day panic.

  • • •

  On the last day of October, the Grays found that their phone was still working, but only for local calls. When they tried making long-distance calls, they got an

  “All circuits are busy now” recording, at all hours of the day or night. The next day, there was message advising, “All circuits will be restored shortly.” Two days later, there was no dial tone.

  By early November, there was almost continuous rioting and looting in every major city in the U.S. Due to the financial panic and rioting, the November election was “postponed” to January, but it never took place. Rioting grew so commonplace that riot locations were read off in a list—much like traffic reports—by news broadcasters. The police could not even begin to handle the situation. The National Guard was called out in most states, but less than half of the Guardsmen reported for duty. With law and order breaking down, most of them were too busy protecting their own families to respond to the call-up. An emergency call-up of the Army Reserve three days later had an even smaller response. All over America, entire inner-city areas burned to the ground, block after block. No one and nothing could stop it. On the few occasions that the National Guard was able to respond to the riots, there were some massacres that made Kent State seem insignificant.

  Many factories in proximity to the riots closed “temporarily” in concern for the safety of their workers, but never reopened. Most others carried on with their normal operation for several more days, only to be idled due to lack of transport. Shipping goods in the United States of the early twenty-first century in most cases meant one thing: eighteen-wheel diesel trucks traveling on the interstate highway system. The trucks stopped rolling for several reasons. First was a fuel shortage. Then came the flood of refugees from the cities that jammed the highways. Then cars that ran out of gas disrupted traffic.

  As cars ran out of gas, they blocked many critical junctions, bridges, and overpasses. Some highway corridors in urban areas turned into gridlocked parking lots. Traffic came to a stop, motionless cars began to run out of gas, and the forward movement of traffic was never resumed. In some places, cars were able to back up and turn around. In most others, people were not so lucky.

  There, the traffic was so densely packed that drivers were forced to just get out of their cars and walk away.

  Every major city in the United States was soon gripped in a continual orgy of robbery, murder, looting, rape, and arson. Older inner-city areas were among the hardest hit. Unfortunately, the design of the interstate freeway system put most freeways in close proximity to inner-city areas. The men who had planned the interstate highway system in the 1940s and 1950s could not be blamed. At that time, downtown areas were still flourishing. They were the heart of industry, population, commerce, and wealth. Thus, it was only logical that the highways should be routed as close to them as possible, and preferably through them. These planners could not then have predicted that in fifty years the term “inner city” would become synonymous with poverty, squalor, welfare, drugs, disease, and rampant crime.

  America’s once proud and efficient railroad system, long the victim of government ineptitude, was unable to make any appreciable difference in the transportation crisis. Most of the factories that had been built in the past thirty years had been positioned near highways, not railroad tracks. Also, like the highways, most rail lines passed through urbanized areas, placing trains at the same risk as trucks. Gangs of looters found that it did not take large obstructions to cause train derailments. Within a few hours of each derailment they stripped the trains of anything of value.

  A few factories managed to stay in operation until early November. Most had already closed, however, due to failing markets, failing transportation, failing communications, or the failing dollar. In some instances, workers were paid through barter, rather than cash. They were paid with the company’s product.

  Chevron Oil paid its workers in gasoline. Winchester-Olin paid its workers in ammunition.

  The last straw was the power grid. When the current stopped flowing, the few factories and businesses still in operation closed their doors.Virtually every industry in America was dependent on electric power. The power outages forced even the oil refineries to shut down. Up until then, the refineries had been operating around the clock trying to meet the increased demand for liquid fuels. Ironically, even though refineries processed fuel containing billions of BTUs of energy, most of them did not have the ability to produce enough electric power to supply all of their needs. Like so many other industries, oil refiners had made the mistaken assumption that they could always depend on the grid. They needed a stable supply of electricity from the power grid for their computers and to operate the solenoids for their valves.

  The power outages caused a few dramatic effects. At a Kaiser aluminum plant near Spokane, Washington, the power went out during the middle of a production shift. With the plant’s electric heating elements inactive, the molten aluminum running through the hot process end of the plant began to cool.

  Workers scrambled to clear as much of the system as possible, but the metal hardened in many places, effectively ruining the factory. If the plant were ever to be reopened, the hardened aluminum would have to be removed with cutting torches or jackhammers.

  Electricity also proved to be the undoing of prisons all over America. For a while, officials maintained order in the prisons. Then the fuel for the backup generators ran out. Prison officials had never anticipated a power outage
that would last more than two weeks. Without power, security cameras did not function, lights did not operate, and electrically operated doors jammed. As the power went out, prison riots soon followed.

  Prison officials hastened to secure their institutions. Under “lock down” conditions, most inmates were confined to their cells, with only a few let out to cook and deliver meals in the cell blocks. At many prisons the guard forces could not gain control of the prison population, and there were mass escapes.

  At several others, guards realized that the overall situation was not going to improve, and they took the initiative to do something about it. They walked from cell to cell, shooting convicts. Scores of other prisoners died at the hands of fellow convicts. Many more died in their cells due to other causes; mainly dehydration, starvation, and smoke inhalation.

  Despite the best efforts of prison officials, 80 percent of the country’s more than one-and-a-half-million state and federal prisoners escaped. A small fraction of the escaped prisoners were shot on sight by civilians. Those that survived quickly shed their prison garb and found their way into the vicious wolf packs that soon roamed the countryside.

  The economic depression and resultant chaos that gripped America also occurred around the world. Each evening, Todd and Mary Gray turned on the Drake R8-A shortwave receiver that Mary had mail-ordered from Ham Radio Outlet the previous year. They listened to the civilized world disintegrate. It was a sort of macabre form of entertainment. In many cases, radio stations went off the air altogether. The first to go was Radio South Africa, followed by the BBC, Radio Netherlands, and Radio Deutsche Welle.

  On one notable evening of listening, Todd and Mary were listening to HCJB in Ecuador, and were surprised to hear gunfire in the background as the news announcer spoke. Then, even more incredibly, the radio station was taken over by revolutionaries while they listened. The Grays turned off their receiver after the microphone was taken over by a “Commandante Cruz” who was shouting in rapid-fire Spanish.