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Chapter 165 Alchemist
Chapter 165 Alchemist
On the second floor of Pittsburgh City Hall, at the end of the corridor, the heavy double doors were tightly closed.
This was originally a VIP meeting room used to receive high-ranking officials from Washington and state levels.
But two weeks ago, an urgent list from Philadelphia landed on Ethan Hawke's desk.
The requirements listed are industrial-grade servers, independent fiber optic lines, and a full suite of anti-eavesdropping security measures.
This was Evelyn Saint-Cloud's request.
Without any hesitation, Ethan mobilized the city hall's logistics department overnight.
The workers moved away the original round table, removed the decorative paintings, and placed several huge long tables pieced together, as well as dense wiring channels laid along the walls.
Three weeks later, at nine o'clock in the morning, Evelyn St. Cloud's team took over the place.
The group of people were dressed in dark suits and had cold eyes.
Leo sat at the head of the long table, with Ethan to his left and a thin man to his right.
Arthur Goldman.
The sixty-year-old Jewish man stared at the laptop screen in front of him, his fingers tapping on the keyboard. After seeing Leo take his seat in the main seat, Arthur stopped and closed the laptop.
"We can begin."
He stood up and walked to the whiteboard.
"Mr. Mayor, our goal is very clear."
"You have $500 million. You want to use this money to leverage the supply chains of seven cities, including Erie and Scranton, to achieve economic liquidity of $2 billion or more."
Leo nodded.
"That's right."
"This isn't difficult in financial engineering," Arthur said, picking up a black marker. "Technically, we're already prepared; all the technology is readily available."
"The difficulty lies in the law."
Arthur wrote a word on the whiteboard: FBI.
"If you were to issue a currency that circulates in seven cities, you could call it the Pittsburgh dollar or the rusty coin."
"Then tomorrow morning, FBI agents will kick down this door and take you away on charges of counterfeiting currency and illegal banking."
"Federal law strictly prohibits local governments from minting currency; this is a red line. Any attempt to challenge the sovereignty of the dollar will be met with the most severe punishment."
Arthur looked at Leo.
"So, our first lesson is how to name this thing."
He wrote two names on the whiteboard.
"We call this system the Regional Industry Bill Platform."
"We call this pool of funds the Pennsylvania Industrial Alliance Trust."
Arthur pressed his pen heavily on the whiteboard.
"In the legal documents, the payment vouchers that circulated between Erie's steel mill and Scranton's cement plant have a legitimate name."
He wrote down a long string of words.
Accounts receivable equity certificate.
Leo looked at the line of text.
Absolutely no aesthetic appeal.
Any ordinary person would instinctively filter out this word upon seeing it.
Roosevelt, however, greatly admired the name.
"Wonderful!"
"If you want to start a revolution, you have to learn to disguise yourself. If you shout that we want to issue a new currency, you are a rebel, but if you say that we are digitizing accounts receivable, you are a financial innovator."
"Back then, I wanted to support Britain, but I couldn't say we were going to war, nor could I say we were going to send weapons, otherwise the isolationists in Parliament would impeach me."
"That's why I invented the Lend-Lease Act."
"In reality, that means sending destroyers and tanks to the battlefield."
"Using the driest business and legal jargon to mask the most radical revolutionary essence. Arthur was a master at this; he knew it all too well."
Leo looked at Arthur.
"Okay, name sorted," Leo said. "It's just a piece of paper, or rather, just a string of code in the server. Why would Erie's steel mill accept this piece of paper? How can they believe it can be exchanged for real money?"
This is the core issue.
CEDIT.
The essence of money is credit.
The dollar is money because the Federal Reserve says it is money, and because the US government's aircraft carriers and taxes are backing it.
Why should shrewd factory owners accept a certificate issued by Pittsburgh City Hall?
Arthur was prepared.
He drew a pyramid on the whiteboard.
"Currency anchor".
Arthur pointed to the base of the pyramid.
"The first anchor is the five hundred million US dollars in cash you have."
"We've injected this $500 million into the trust as Tier 1 reserves. We've set a redemption ratio, say 50%. This means that for every $2 worth of certificates we issue in the market, there's $1 in cash readily available in the vault."
"This is solid credit. A 50% cash coverage ratio is already much safer than most commercial banks."
Ethan quickly calculated beside him: "So, that means we can issue a maximum of several hundred billion dollars in certificates?"
'
"That's true in theory," Arthur replied. "But that's not enough. If a bank run occurs, or if everyone wants to exchange their vouchers for dollars and leave the market, the system will still collapse."
"We need a second anchor point."
Arthur drew a horizontal line in the middle of the pyramid.
"These vouchers can be used not only to exchange for money, but more importantly, to make purchases."
"Erie's steel mills, with their vouchers, can buy coal from Scranton. Scranton's coal mines, with their vouchers, can pay for shipping to the Pittsburgh logistics center."
"We can lock in the supply chain of these seven cities through administrative agreements. In this closed loop, the certificate is the pass; as long as you want to do business in this circle, you must use it."
"This is difficult, Arthur." Leo looked at the line. "It means I have to convince several other mayors to switch to a type of bill that currently only exists in your head."
"I know it's difficult."
Arthur's tone remained calm.
"But as your financial architect, I don't consider the actual political difficulties of implementation; I'm only responsible for designing the most correct system."
"Logically, only through this kind of mandatory supply chain lock-in can this piece of paper be given real value. Only when it can buy coal and pay for shipping can it be more than just an IOU."
"Difficulties are meant to be solved, Mr. Mayor. If we don't do the right thing just because it's difficult, then what are we experts supposed to do?"
Leo did not reply.
He simply nodded, signaling Arthur to continue.
Arthur looked at Leo and continued, "To make this system truly possess the attributes of currency, to make it indestructible, we need a third anchor point, which is also the top-level anchor point."
"This requires exercising your administrative sovereignty."
Arthur wrote a word at the top of the pyramid.
税。
"You must push through an executive order."
Arthur's voice echoed in the conference room.
"The city of Pittsburgh, and all other city governments in the coalition, are hereby declared to unconditionally accept these receivables rights certificates for the purpose of paying local taxes, administrative penalties, and purchasing public services."
"Furthermore, the full amount will be deducted on a 1:1 basis."
The room fell silent.
This is the real trump card.
One of the key reasons why money becomes money is that governments accept it as a means of taxation.
If you can use this piece of paper to pay taxes, then this piece of paper becomes legal tender.
It is no longer waste paper; it is an extension of government credit.
"As long as the government recognizes it, it's money. As long as businesses need to pay taxes, they need to hold this certificate."
This forms a perfect closed loop.
"Companies use products to exchange for vouchers, use the vouchers to pay upstream and downstream customers, and finally use the vouchers to pay taxes to the government. The government then collects the vouchers and completes the deregistration process."
"In this process, cash is locked up, and liquidity is created."
Leo sat in his chair, his fingers tapping rhythmically on the table.
He stared at the large "Tax" character on the whiteboard, his brow furrowed.
"Arthur, the risks involved are too great."
Leo spoke.
"If the government accepts these vouchers as tax revenue, what about our budget? Our financial statements show revenue in US dollars, but what we actually receive is a bunch of electronic codes."
"I can't use these codes to pay police salaries, nor can I use them to pay taxes to the federal government."
"Furthermore," Leo's eyes sharpened, "most importantly, wouldn't this violate federal law?"
"If we define this certificate as one that can be used to pay taxes, then in a sense, it possesses the attributes of legal tender. The federal government's monopoly on the right to issue currency is absolute; they will not allow any local government to issue its own currency to replace the dollar."
"Once I am found to be attempting to establish an independent monetary system, it is not just a matter of administrative violation; it is a federal felony, and I could potentially spend the rest of my life in jail."
Leo looked at Arthur.
"You must give me an explanation that can stand up to scrutiny in court."
"An explanation that allows me to confidently say, even when questioned by federal prosecutors, that this is not about money."
Arthur smiled slightly, as if he had anticipated Leo's concerns.
"That's why we need those expensive lawyers."
Arthur pointed to the legal advisors sitting next to him.
"Mr. Mayor, we will not declare in any legal documents that this is a currency, nor will we claim that it can replace the US dollar."
"We will use another phrasing."
"This falls entirely within the scope of local government's fiscal autonomy under the law. We have the right to decide whose taxes to exempt and what kind of deductions to accept."
Arthur paused, seemingly considering his next words.
He initially thought these details were too tedious and technical, and there was no need for the mayor to worry about them at this stage, but seeing Leo's inquisitive eyes, he decided to be frank.
"However, Mr. Mayor, there is a department we cannot bypass: the Internal Revenue Service."
"The IRS doesn't care what we call this thing; they only care whether it brings them federal tax revenue."
Arthur wrote the words "Barter Trade Principles" on the whiteboard.
"According to the IRS guidelines, they would consider such an exchange of documents as barter trade. The core rule is that businesses must include the fair market value of the goods or services received in their total income in the year the transaction occurs."
Arthur gave an example: "Suppose Company A builds roads for the city government and receives a note of credit worth $1. In the eyes of the IRS, Company A's current income is a real $1."
When Company A uses this $1 invoice to buy steel from Company B, the IRS will consider Company B to have sold steel worth $1.
For every $10,000 worth of goods, Company B generates $10,000 in taxable income.
"That's the problem." Arthur's voice turned serious. "Although companies A and B exchanged items within our closed loop and never saw a single real dollar, they still have to pay federal income tax to the IRS in dollars."
Leo's brow furrowed even more: "You mean, our closed loop doesn't contain dollars, but the federal government is going to take dollars out of it?"
“That’s right,” Arthur nodded. “Furthermore, if our industry consortium trust acts as an intermediary in the transaction, under federal law, the trust itself could be defined as a barter exchange. We would be responsible for filing Form 1099-B with the IRS, listing the total amount of assets each member received through the notes.”
"If we don't report it, it's considered collective tax evasion, and the FBI and IRS will freeze the trust accounts the next day and take us all away. If we report it, how will those companies with nothing but invoices pay their federal corporate income tax?"
"So, the receipt is only part of it," Arthur said. "When the city government pays the bill, it can't give us the entire amount in receipts; we have to give at least 60% in dollars."
"Why 60%?" Leo asked.
Arthur explained, "This involves a very important issue concerning people's livelihood."
"It's fine for the vouchers to circulate between the company and the government without any real connection, but how will the company responsible for the project pay the workers' wages?"
"Workers don't live off receipts or pay business taxes. They need dollars to buy bread at the supermarket, to pay rent, and to pay their children's school fees."
"If the city government only issues these kinds of vouchers to businesses, where will they get the cash to pay their workers? If they can't pay wages, your recovery plan will be overwhelmed by a wave of strikes the very next day."
Arthur answered his own question: "Ultimately, in order to maintain this system, the city government will still have to provide cash."
"So our strategy is to use a very small amount of US dollar cash to drive a very large number of voucher cycles."
"To achieve this, we came up with three methods."
Arthur held up three fingers.
"First, a mixed payment system."
"When settling payments with factories in cities like Erie and Scranton, the government does not use full vouchers, but rather a ratio of 60% US dollar cash + 40% credit vouchers."
Arthur quickly wrote down several formulas on the whiteboard.
"According to estimates, for a typical manufacturing company, fixed cash expenditures, including worker wages, federal taxes paid to the IRS, and the purchase of out-of-town raw materials that cannot be paid for with vouchers, account for about 60% of the total cost."
"The 60% cash we paid was specifically intended to cover these costs that had to be paid in US dollars."
"The remaining 40%, which was originally intended for corporate profits, depreciation, and local procurement, was all paid for using vouchers."
"As a result, the government's demand for US dollar cash dropped by 40% instantly. Where we used to only have enough money to build one park, now we can build two."
"But what if?" Leo pressed. "What if some companies are experiencing cash flow problems, and 60% isn't enough to pay salaries?"
"That's the second line of defense."
Arthur pointed to the "Pennsylvania Industrial Alliance Trust" in the center of the flowchart.
"Lender of last resort mechanism".
"The St. Cloud family's funds will open a discount window for the trust."
"If a road construction company finds it doesn't have enough cash to pay wages at the end of the month, they can use the remaining credit instruments to approach the trust."
"The trust will buy these certificates, but at a discount. For example, if a company submits certificates with a face value of $100 million, the trust will give it $95 in cash."
"This kind of discounted exchange is painful for businesses, so they will try their best to spend the vouchers within the alliance. They will only come to us to exchange for cash when they are desperate and have to pay salaries to survive."
"This ensures that workers always receive their money, while also locking up the system's liquidity."
"But why?" Leo asked. "Why would the St. Cloud family be willing to act as this discount window?"
Arthur replied, "Because it's a profitable business."
"When those factory owners had to come to us with their notes to exchange for dollars in order to pay federal taxes, we would buy them at a 95% discount. This means that for every 95 cents we paid, we received a debt certificate with a face value of $1."
"Then, the office buildings, hotels and logistics centers that the St. Cloud family owns in various cities are required to pay property taxes and business surcharges to the municipal governments."
"We will return these receipts we just received to the IRS intact, at the face value of $1, to be used to offset our taxes."
"With just one in and one out, we did nothing and yet gained a 5% risk-free arbitrage return. In today's low-interest-rate market environment, this is like picking up money."
Leo nodded.
Intertwined interests.
This so-called "discount window" will remain open as long as it is profitable for the Saint-Cloud family.
Arthur paused, a hint of madness flashing in his eyes.
"We can even go a third step if you're bold enough."
"What?"
"Salary vouchers"
Arthur said.
"We can lobby the large local supermarket chains in Pittsburgh, such as Giant Eagle, or the small businesses in the community to join the alliance."
"We told the businesses that if they accept the vouchers, we can waive their water and property taxes."
"Then, when the company pays salaries, the payslip can show: $2000 in cash, plus $500."
"Consumption vouchers issued by the employer."
"Workers can use these vouchers to buy discounted bread at supermarkets and fill up their gas stations. The supermarkets collect the vouchers and then return them to the government for tax deduction."
"Of course, this step carries the highest legal risk and is most likely to be accused of illegally issuing currency," Arthur added. "So we must be extremely careful to define it as an employee benefit discount voucher in legal documents, and never say that it is part of the salary."
"Next is the municipal budget, which is what you're concerned about."
Arthur's tone softened somewhat.
"When we make the budget, we still use US dollars to comply with the state's audit standards."
"But in the details of income, we will list a separate line for non-cash deductible income."
"While this revenue cannot be used to pay police officers' salaries or to pay federal Social Security, it has a specific purpose: to offset government procurement."
Arthur drew a huge equal sign on the whiteboard.
"For example, the city hall used to need to spend ten million US dollars in cash to buy steel from Erie's steel mill, which was a real cash expenditure in the past."
"Now, we have paid for the steel with ten million in deduction vouchers. The steel mill received the vouchers and then used them to offset the ten million in taxes owed to the municipal government."
"On the financial statements, this is reflected as: we have ten million less in cash for tax revenue, but at the same time, we have ten million less in cash for capital expenditures."
"The balance sheet remains balanced."
"The deficit did not increase, the debt was not defaulted, and the project was completed."
Leo was not blinded by this perfect accounting loop.
He stared at the flowing lines on the whiteboard and pointed out the most vulnerable link in the system.
"So, Arthur. After all this trouble, the government still has to pay in the end, right? After all, those tax deductions are essentially our fiscal revenue."
"Yes, the government has to provide the money at some point."
Arthur closed the pen cap and smiled.
"But you're playing a game of time difference and increment."
"Pittsburgh has many factories on the verge of bankruptcy, owing the government millions of dollars in taxes and water bills, which would otherwise be uncollectible bad debts."
"Now, they offset these debts by earning credentials for working for the government. This means the government has completed the infrastructure construction and cleaned up its balance sheet with only half the dollars it paid."
"Moreover, as the project fully commenced, previously unemployed workers received cash wages. They began buying cars, eating out, and spending money, resulting in a real increase in the government's sales tax and personal income tax revenue."
Arthur looked at Leo.
"The government used the extra dollar tax revenue generated by the economic recovery to buy back and destroy those certificates from the trust."
"When the last certificate was destroyed, the road was repaired, the workers were fed, the factory survived, and the government's accounts were still balanced."
"This is the alchemy of finance, Mr. Mayor."
"We're not making money, we're making accounts."
Leo sat in the chair, his mind racing.
While Arthur's financial framework is ingenious, it is still a rough model with many details that need to be refined.
How can we ensure corporate compliance when claiming tax deductions? How can we prevent the malicious manipulation of vouchers on the black market? How can we respond to potential federal audits?
The specific financial models, the wording of legal documents, and the code of the risk control system all require these professionals to polish them day and night.
But Leo now only needs to make one decision: is he willing to take this gamble?
If this system collapses, if these so-called "equity certificates" become rampant and devalued, or if they are classified as illegal currency by federal agencies, then what the city government will collect in the future will no longer be US dollars, but a pile of worthless paper.
Pittsburgh's finances would go bankrupt instantly, and he would go to jail for it.
But what else can we do if we don't do it?
That $500 million in cash is burning at an alarming rate.
Once the fire is extinguished, construction will cease, the revitalization plan will be abandoned, and everything will come to an end.
"Aren't you ready yet?"
Roosevelt's voice echoed in my mind.
"This is the only way, Leo."
"If you want to establish a new order on these ruins, you must seize this power."
"Even if it's a power disguised as a business credential."
Leo stood up and walked over to Arthur.
"Is this system running perfectly right now?"
"Technically, there's no problem," Arthur replied quickly. "As long as you sign, the server can be started tonight, and Yili's steel mill will receive the quota tomorrow morning."
"No, I'm not referring to technology."
Leo shook his head.
I mean people.
He turned around, walked to the window, and looked at the sky outside.
"The closed loop of this system depends not only on Pittsburgh, but also on Erie, on Scranton, and on Johnstown."
"It depends on those old guys like Ron Smith and Joe Byers."
Leo's eyes deepened.
"If I just threw this radical system in their faces right now and told them, 'Hey guys, we're going to issue our own currency to fight the state government,'"
What do you think they will do?
Ethan frowned beside him: "They're probably terrified. They're Republicans, they might think this is a rebellion, and then, to save themselves, they'll turn around and sell us out to the state attorney general."
"That's right."
"If I act too hastily, this alliance will crumble from within."
"I need the right time."
"An opportunity that forces them to accept, or even beg, me to accept, this system."
Leo looked at Arthur again.
"Arthur, listen."
"I need you and your team to continue working. I want you to refine the details of this system to perfection and minimize legal risks."
"Even if you have to tear the Commercial Code to shreds, you have to find me more compliance grounds."
"I understand, Mr. Mayor."
Arthur nodded.
Leo knew he held the nuclear button in his hand.
But he won't press it now.
He has to wait.
Let the wind get stronger, let the fire get blazing.
"Mr. President."
Leo said softly to himself.
"I'm not in a hurry."
"Since we are going to establish a new order, we must first let the people of the old order taste the bitterness of despair."
Roosevelt's laughter echoed in my mind.
"That's right, child."
"The most important quality a hunter needs is not marksmanship, but patience."
"Just you wait and see."
"They'll walk into the cage on their own."
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