Y2K bug is indeed a Y99 management problem

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Y2K bug is indeed a Y99 management problem

There are a number of alarmists, I will call them "Pessimists", predicting doom and gloom scenario due to the Y2K computer glitch. There is a talk of bank runs, widespread power failures, water supply disruptions, telecommunication faults, airplanes falling from the sky, computer screens going blank at nuclear sites, recession, depression and worse. Doomsday prophets suggest that it is going to be the End of the World as we know it.

There being an equal number of Moderates, I will choose to label them as "Optimists", who say that the predictions of the alarmists are exaggerated. They say that a talk of bank run is nothing but a self-fulfilling prophecy. They claim that airplanes would not fly off the sky. According to them there would be power disruptions and water supply failures but only for a few days and certainly not widespread. They advocate that it would be sufficient to stock extra food and drinking water to last out for a few days. They suggest that some extra cash (maybe two week's salary), fuel, medical supplies and a small generator are more or less enough to tide the crisis.

I haven't yet read a report that says "there will be no disruptions".

The debate is on and would carry on for a lot of more time. What scares me is not the doomsday scenario but the "minor disruptions" scenario. If the doomsday prophets are on the dot then nothing much can be done. All would eventually be lost. The alarmists advise that we should run to thinly populated villages or hills because there will be riots in the cities where there will be no electricity, no water and no food. Not many will follow their advice. If we believe them we have no choice but to wait for Y2K to see what happens.

The optimists give us hope. They say that we will have disruptions lasting only a few days. In order to protect ourselves and our families, they tell us, we should buy food, water and other essential items to last out the first few days of 2000. What they do not tell us is WHEN we should buy all the essential commodities? Should we start stocking food and water now or should we wait till Nov./Dec.'99? In the absence of a firm answer everybody will wait till Nov./Dec.'99. If the entire population decided to stock an additional few days of food and water in the last couple of months of 1999, then where will this additional quantity come from? Would the supermarkets be able of handle the additional volume? What will happen to prices? Panic would surely grip everybody and the Y2K problem will indeed become Y99 problem.

"I'm more positive than I was six months ago." said Sen. Robert Bennett, a Utah Republican who is chairman of the Senate Special Committee on the Year 2000 Technology Problem. Despite becoming more positive, he still says that there would be a "fairly major disruption that will come of this." He also said "I'm now beginning to think the overseas problem will affect us more than I thought and that the U.S. is in better shape than I thought." Coming from the same person; this is very confusing. On one hand he is giving us hope and in the same breath he is taking it away. People will begin to ask "should we act now or wait till year 2000 when the overseas problems start affecting the US?"

Some alarmists like Peter de Jager now feel that there is too much alarm on the issue. Good sign! Peter de Jager said "The people who say buy a cabin in the woods and take your money out of the banks and the markets, they're not only silly, these are self-fulfilling prophesies," "If everyone takes their money out of the banks, the banks will fail." Has Peter de Jager become a moderate? No he has become a Y99 alarmist.

Due to fractional reserve banking system (and this fraction has become really very small), only a few would be able to draw out their money while the banks are solvent. Knowing this how many people would want to be charitable and fight to defeat this self-fulfilling prophecy? I don't know of any. I believe that people are all lined up to run, they are waiting for the whistle. Somewhere in Y99 whistle will blow off, whether we like it or not.

GartnerGroup has been conducting surveys on Y2K readiness in many countries. Their reports are widely read and quoted. In one of their reports, researchers at GartnerGroup said "The year 2000 problem is analogous to a major storm," They added " in this case it will be, at worst, similar to a hurricane, cyclone or bad snowstorm. For individuals, the year 2000 will not be a catastrophe such as a severe earthquake, a huge asteroid crashing into the earth, or a nuclear war." Cassell, GartnerGroup's vice president and director of research, said "We've been reading an awful lot of what we think are irresponsible statements that could lead people to do some unnatural acts". GartnerGroup's year 2000 team is suggesting that families have about two weeks of salary in cash and up to five days of food, water, fuel and medical supplies on hand. People will not believe the alarmists but they will believe the moderates and believing the moderates is believing that we have a Y99 problem.

Close to the end of 1999 rumors will start affecting our lives. An accidental shortage of an essential commodity will be interpreted to be Y2K related. An occurrence that would have otherwise gone unnoticed, may cause PANIC. It may be in order to quote a recent occurrence in India (human psyche is same all over the world). Somebody managed to spread a rumor that salt was in short supply. The price of salt started soaring. Long queues formed in front of grocery shops. The entire population was stocking salt as if they would never be able to buy again. The price shot up from about INR 5 per kg (about US$0.12) to INR 60 per kg (about US$1.50). Fortunately for India, there was a physical stock equal to about 8 months national consumption. The government moved in fast to quash the rumor by feeding the people with as much salt as they wanted to buy. No developed economy in the world operates on such a huge inventory. The inventory to cover 8 month's consumption was more by chance than by planning. If the inventory levels were more reasonable (like in the developed countries) then the rumor would have become a reality. A national emergency would have been the only way out. This occurrence should alert those who are suggesting that everybody should stock an additional quantity of food and water to last out a few days.

Rumors may not necessarily originate from the US. A large number of US banks and businesses have an international presence. For instance, a rumor of a bank run in Europe may have catastrophic implications in the US. Most major credit cards and ATM debit cards of major banks allow worldwide access. It may be logical to expect that a scare in, say, the Middle East may spark the flame.

In the SEC filings almost all companies are stating that they may be adversely affected by the non-compliance of their suppliers, customers and service providers. Many companies feel that failures abroad could cause severe loss to them. A lot of companies are raising their Y2K budgets. A 30% increase in expected costs with about a year to go is not a good omen. If all the companies remain apprehensive of the overall state of affairs well into 1999 then they will start advising their employees to stock essential commodities. They will do this to ensure that their employees report on duty in the first week of 2000. What appears a harmless advice would, certainly, lead to disastrous consequences in Y99.

Y2k is also a Y99 management problem. The governments must face it on a war footing. Queues in front of supermarkets in Y99 could lead to rioting. The governments must be prepared to feed the additional demand. To be in a position to do this they must assess the additional demand of essential commodities and ensure adequate build up of inventory to meet this additional demand. If producers and manufacturers do not build up an inventory to take care of the additional demand then they would have to nearly double their production in Dec.99 - a practical impossibility. To increase the inventory levels is easier said than done. It requires a lot of surplus money, storage space and lots of planning. If money is not available then governments and Banks may help. What about storage space?

Assuming that producers and manufacturers do build up the inventory to the required levels. Is the existing distribution network capable of handling the additional volume? Everybody has the answer. Alternate distribution arrangements must be in planned. And we must remember that weather in Dec./Jan. is going to make things worse.

The alarmists suggest that we should withdraw all our savings from the bank accounts while the ATMs work. They warn that there would be bank runs. They predict hyper-inflation and purchasing power of paper currency and paper assets going down. They suggest that we convert our bank balances into Gold before gold prices shoot up. The optimists dismiss these as self-fulfilling prophecies. They suggest that we withdraw only an additional US$ 500 to take care of the minor disruptions which may occur. This is a bad suggestion for two reasons. Firstly, there isn't enough currency in circulation and in FED vaults to allow everybody to hold this additional amount (Banks, FED vaults and ATMs must continue to hold a certain minimum amount of currency at all times). Secondly, if everybody wanted to withdraw money in Nov-Dec'99 then the Banks and the ATMs will not be able to handle the rush. The telephone lines and the bank computers will get jammed resulting in large processing time for every transaction. Long queues in front of tellers and ATMs are only going to make things worse. If people have to wait for a long time to draw their money then they may want to withdraw all of it when their turn comes.

Seeing the threat, the US Fed has announced that it would hold an additional US$ 50 billion in its vaults. This is too little an amount. They should plan to hold an additional US$ 500 billion. If they can't print US$500 billion in the existing denominations then they should monetize $1000 note.

Analyst must start advising their followers not to withdraw any extra cash. If people must withdraw some additional cash then they must do so now. The spacing out of the withdrawals will prevent long queues in front of the ATMs and will give the governments and banks enough time to plan. Too late is too risky.

There is a common belief that our financial system is "too big to fail". We have a Y2K warning. Some of the leaders seem to be ignoring the warning. Does it not remind you of Titanic - the unsinkable ship?

Koskinen, chairman of the President's Council on Year 2000 Conversion, said in an interview "It's the people who say you don't have to worry about it that you have to worry about".

Sunil Madhok - you guessed it - Gold Eagle

-- Andy (2000EOD@prodigy.net), February 07, 1999


What? Keep only 2 weeks of food supply on hand? In my family of my wife and I, and 5 kids, there is NEVER LESS than that in the kitchen!

Admittedly, towards the end of two weeks, the food would get rather boring, but we shop weekly, and perhaps 3 times a week, do "supplemental" shopping - milk, eggs, perishables; those "few things" otherwise unanticipated.

We are planning on gradually increasing our food supply over the year (to minimize financial hardship on us) so that we will have about 2-3 month's supply at year's end.

Are there really people who don't have TWO WEEKS worth of chow in the kitchen?

How strange.

-- Benjamin Smith (bens@saber.net), February 08, 1999.

It would also be prudent to insure that you can provide yourself heat and water, with no help from public utilities, for two weeks. More if you have the means.

Food is not the only issue.

-- Kevin (mixesmusic@worldnet.att.net), February 08, 1999.

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