that if the embedded systems problems are half as bad as anticipated, fuel supplies will be drastically reduced, fuel prices will skyrocket and gas tax income will decrease by 30 per cent minimum and 60 to 80 per cent or more on the most probable outcome. Yet the work programs continue to forecast 5 years of projects as though there will be no disruption of gas tax income. Projects are done in phases, location, design, right-of-way acquisition, construction etc. and with no reserves, a drop in revenue will raise havoc with the overall program and require the cancellation of critical projects and big expenditures on projects where funds are not available to complete the future phases. If effect this money will be wasted if the construction project is not built. Do the major highway organizations have a clue? Do any readers know of any transportation agency that has recognized this problem and projected a work program that realistically projects a drop in income? Even if everything else is fixed, a decrease in revenue will mean an inability to pay road building contractors, consultants, property owners, and employees of these companies. A decrease in revenue is virtually guaranteed even if the economy only suffers a minor recession. A major recession or depression is predicted by most knowledgable experts who can provide honest answers and not the spin typical of governmental officials. Even Ed Yardini of Duschebank fame predicted odds of 70 per cent for at least a recession. Does gas tax revenue increase during a recession? I don't think so. The same loss of revenue is faced by practically any governmental organization. If unemployment increases and people have less to spend, how can any governmental unit expect level revenues? I am amazed at all of the new shopping centers etc. going up. These are almost guaranteed to fail and the loans will be in default. Duh. A 3 day storm my a_ _. Is anyone aware of any government contingency plan that recognizes ANY reduction in income due to Y2k problems even if the power, banks, railroads, and communications continue to work? It does not look good.

Another thread on "What they know about Y2k" about 20 lines down from here provides additional insight on these issues and is very well written.

-- Moe (Moe@3stooges.gom), July 25, 1999

Answers

Moe, excellent points. Moooooo

-- herd sniffing? (whatgoesup@up.upup), July 25, 1999.

Either they are clueless, Moe, or you and I are clueless. And sometimes I am in doubt.

-- dave (wootendave@hotmail.com), July 25, 1999.

Mike T.,

I was intrigued by your comment that "by the stroke of a pen," the President could cause 6-month T-bills to be converted into 30 year bonds. Do you have any specifics on this?

It seems to me that even if he has the authority and power to do so (perhaps under some kind of emergency powers act), it would be suicidal -- for nobody in his right mind would ever lend a penny to the government again. It's one thing to tell people that their 30 year bonds are going to be stretched to, say, 35 years. But to tell citizens that a short-term, 6-month loan to the government is going to be converted into a 30-year debt obligation is tantamount to simply stealing it from them. And I think the reaction of the average citizen would be, "Fool me once, shame on you; fool me twice, shame on me."

Your thoughts?

Ed

-- Ed Yourdon (still.lurking@newmexico.com), July 25, 1999.

Ed, There is no way on the good green earth that the maturity dates of Treasury obligations would be altered by law. For the sake of fanciful argument, assume the world goes full Thunderdome in January. The most that would happen is that coupon payments and principal repayments would be missed temporarily because communications or systems were down.

If the government could not do its budget "business" in the usual manner, it could simply "monetize" the public debt, ie., print dollar bills. There is no reason that it would have to result to the extra- legal means of unilaterally altering the terms of its existing obligations.

In other words, the dollars paid by the Treasury may be worth less or even worthless, but you should still be paid on time and in full. These are my opinions.

-- Puddintame (achillesg@hotmail.com), July 25, 1999.

Puddintame,

Thanks -- your perspective makes a lot of sense to me!

Ed

-- Ed Yourdon (still.lurking@newmexico.com), July 25, 1999.

Ed: Dusting off my old finance degree here... I think I recall that there is fine print out there that would allow them to do that, but I agree that it would be unlikely to happen. There are too many other options available that could be exercised, any of which would save the "risk-free" perceptions the markets have regarding Treasury securities. As one of my profs drilled into us, the US of A "can't" go broke, it can always raise money one of three ways: (1) tax for it; (2) borrow it; (3) print it. The immediacy of the situation would call for (2) or (3): issue new additional 30 year bonds and use the proceeds to pay off the T-bills, or get the Fed to just buy them back (which is essentially printing money). If markets are shaky, selling new 30 year paper might be difficult, but at the right rate I suspect you could raise buyers. Now whether the .gov will have the functional ability to do any of this is another matter entirely. Hope this makes sense.

-- justan (old@finance-jock.com), July 25, 1999.

I have heard rumors of the T-Bill to T-bond substitution for several years, but no real facts. But the Govt can only do it once. There have also been rumors circulated that the govt will require some fraction of ira accounts be in govt paper.

-- dave (wootendave@hotmail.com), July 25, 1999.

Waitaminute, there! Ed, I don't think Puddintame quite nailed it that time.

Printing the money is exactly what they're talking about for the $50- 70 billion to back up the banks at year's end, and that's with the printing presses running full speed. Maybe they could change the mix to 100s instead of 20s and double it (or maybe they couldn't -- ??), but they couldn't just "print" the portion of the national debt that rolls over annually -- I think it's highly "leveraged" at the 40% or so level (check before you quote me on this one, but it _has_ increased under BJC's enlightened regime).

That's a couple trillion a year to borrow or print. Not likely printable.

Being the world's reserve currency (and US Treasury debt backs the currency) carries a certain austere requirement of never doing anything too radical, or knowing you may only get to do it one time in a pinch and then never again if it costs you a fall off that pedestal.

Anyone want to guess what might be done with the trillions of illiquid bank deposits that might be trapped in bank accounts after a run cleans out all the cash? 30-year Federal Reserve/Treasury guarantee notes?

T-bill and bondholders would be looked at like a business might look at a present and possibly future customer when weighing the service level to give: "Have we already got in all we're gonna get from this guy? What's he gonna do for us in the future?"

But I can guarantee you that such a decree would be the most secret thing a President's ever done, because it would create an overnight surge of interest rates to 50% or so if it leaked before. He'd have to be pretty sure things were already terminal and have a lot of other emergency measures to announce simultaneously.

-- jor-el (jor-el@krypton.uni), July 26, 1999.

The ol' housemouse has a stupid question... How will the money printing equipment work after Jan 1, 2000?

Is it all manual?

...............................................................

-- housemouse (jgj@nevermind.net), July 26, 1999.

Both of the Bureau of Engraving printing plants have back up generators, but I do not know how much fuel.

-- dave (wootendave@hotmail.com), July 26, 1999.

Seems like we need to look to history to see what Leaders can do during times of crisis and stress.

Anybody remember what FDR did to the "official" price of gold? Or the context in which that took place?

Or the willingness of other leaders to put wage/price controls on top of other problems?

How about Lincoln's "stroke of a pen" that helped to weaken and destroy the Confederacy?

These sort of things NEVER seem likely beforehand.....and we certainly live in strange times.

Anita Evangelista

-- Anita Evangelista (ale@townsqr.com), July 26, 1999.

Moe -

Not being an economist by any stretch of the imagination (except for family finance and even that is questionable at times :-)). I would think that the biggest stumbling block for this particular administration to projecting 5 years in advance with a possible decline in revenue of 30% to 80% (that's your spread as I read it) would be simply that to do so would be admitting to far larger troubles than they have been willing to admit to up to this point in time. In other words, this would be tantamount to reversing the spin in mid-cycle.

-- Valkyrie (anon@please.net), July 26, 1999.

Place the money supply (and other supplies) in context with...

What "They" Know About Y2K That We Don't

http://www.greenspun.com/bboard/q-and-a-fetch-msg.tcl?msg_id= 0018TB

-- Diane J. Squire (sacredspaces@yahoo.com), July 26, 1999.

IN THE DISCUSSION ABOU 6 M0 "'T" BILLS TURNING TO 30 YEAR BONDS. I READ SOME WHERE THAT HAPPENED IN THE EARLY 1930 IN ALL OF THE BANK FAILURES. BOB

-- BOB (RCROZIER@KOYOTE.COM), July 26, 1999.

Housemouse,

Even though I understand your comment, I'd like to remind the readers that money can't be printed; it can only be coined. Monetized debt backed by absolutely nothing is not money. Federal Reserve Notes are but beautifully engraved chits. The Constitution only grants Congress the power to coin money in gold or silver. The Constitution also says that no state shall make anything other than gold or silver in payment of debt. These provisions of the Constitution have not been repealed! The President and members of the House of Representatives all take oaths to uphold and defend the Constitution. Yet we don't see any of them defending the Constitution from the bankers, do we? Time to sweep the scoundrels out and start over. Here comes the great broom of Y2K!

-- Prometheus (fire@for.man), July 26, 1999.