Currency Wars_ The Making of the Next Global Crisis - James Rickards [7]
After some delays and uncertainty during the changeover of administrations, the Obama administration gave the go-ahead to proceed as planned. The formal invitations went out in late January 2009. The war game would be played over two days, March 17 and 18, at the APL Warfare Analysis Laboratory inside the imposing war room it had used in many past simulations.
All war games have certain elements in common. They involve two or more teams, or cells, which are customarily designated either by the names of countries involved or by colors. A typical game might involve a red cell, usually bad guys, versus a blue cell, the good guys, although some games have multiple sides. One critical cell is the white cell, which consists of a game director and participants designated as umpires or referees. The white cell decides if a particular game move is allowed and also determines who wins or loses during each round of the game. Generally the game designers attribute specific goals or objectives to each cell; thereafter the players are expected to make moves that logically advance those objectives rather than move off in unexplained directions. The game design team will also use political scientists, military strategists and other analysts to describe the initial conditions affecting all the players—in effect, they determine the starting line. Finally, some system of power metrics is devised so that the relative strength of each cell can be established at the beginning of the game, in the same way that some armies are larger than others or some economies have greater industrial potential at the start of any war.
Once in play, the participants will then direct the moves for each cell, with the white cell adding or subtracting points from each competing cell based on its assessment of the success or failure of each move. Other design features include specifying the number of days over which the game will be conducted and the number of moves on each day. This is an important practical constraint, because many of the outside experts find it difficult to be away from their other professional duties for more than two or three days at a time.
I was not a war game expert but I was the designated Wall Street expert, so I worked side by side with the game designers to fit the world I knew into the categories, timelines, rules and budgets that they had within their parameters. One of my main goals was to make sure that the game design allowed for unconventional scenarios. I knew that a real financial attack would not involve anything as obvious as dumping Treasury notes on the open market, because the president has near dictatorial powers to freeze any accounts that try to disrupt the market in that way. An attack would almost certainly involve hard-to-identify cutouts and hard-to-track derivatives. Above all, a financial attack would almost certainly involve the dollar itself. Destroying confidence in the dollar would be far more effective than dumping any particular dollar-denominated instrument. If the dollar collapsed, all dollar-denominated markets would collapse with it and the president’s powers to freeze accounts would be moot. I wanted to make sure the game design would allow for a true currency war and not just a war of stocks, bonds and commodities.
The final pieces were falling into place. The team decided we would definitely play a U.S. cell, a Russia cell and a China cell. In addition, there would be a Pacific Rim cell, which would include Japan, South Korea, Taiwan and Vietnam, among others. This was not ideal because as separate states South Korea and Taiwan, for instance, could take very different positions depending on the issue involved, but these kinds of compromises were necessary