REALITY CHECK #43--GARY NORTHgreenspun.com : LUSENET : TimeBomb 2000 (Y2000) : One Thread
Others out there must have gotten thier e-mails of this by now. Comments?
BTW, for all you Polly's who condemn the 'doomers" for profiteering, this REALITY CHECK has been sent FREE to anyone who requests it. I have gotten at least the last 4 issues.
This one sounds VERY bad. It starts with the shocking admission on the 29th, and since confirmed today, and as posted on this board, about the IRS honcho ADMITTING they haven't even got a complete inventory of all their computers!
From there, it follows a logical sequence to determine what the down-the-road consequences will be from this simple admission.
The conclusions are not something to read if you like "light" reading.
-- profit of doom (firstname.lastname@example.org), October 30, 1999
Yes, I'm on the list but haven't received mine yet. Could you post a link so we can ALL see Gary's conclusions??
With just 34 Federal Days 'till the Roll, there isn't time to fix anymore. They should start training people to check each tax return MANUALLY, and fine tune it in December.
Y2K??? Nothing to it...piece of cake!
-- K. Stevens (kstevens@ It's ALL going away in January.com), October 30, 1999.
But Tom Brokow said last night that it's going to be okay...
-- Mara (MaraWayne@aol.com), October 30, 1999.
Best I can figure as to subscribing is to compose an e-mail to: email@example.com Put the single word SUBSCRIBE in capitals in the BODY (message box) section only of the e-mail. Leave the SUBJECT line blank. Just send it away, and an autobot will add you to the list.
Hope this works for you. Got the instructions from the end of the e-mail!
If anyone knows how to quote this whole thing, please help out here.
The e-mail itself requests that it be passed along to anyone who may want the info, with no copyright infringement.
TIME IS SHORT.
-- profit of doom (firstname.lastname@example.org), October 30, 1999.
ary North's REALITY CHECK Issue 43 October 30, 1999
THE IRS WON'T MAKE IT
The posting on Matt Drudge's site on October 29 was a bombshell. Charles Rossotti admitted in a letter to Congressman Bill Archer that the IRS has not completed a full inventory of its systems.
The article was confirmed on October 30. Reuters picked it up. To read it, click through.
Without conducting a full inventory, the IRS does not know how many computers are deficient and in what ways. These computers interact with each other. The IRS does not know what it is facing. It cannot possibly have everything fixed if its programmers do not know what systems there are that need fixing.
Rossotti said he expected that refunds would be sent out on time. But how can he know this? He said that the IRS has conducted end-to-end testing. Of which systems? How does anyone conduct end-to-end testing of a system that has missing parts?
A year ago, an IRS office manager contacted Bill Myers. He wanted to buy a copy of Myers' program, Order Desk Pro, for the local office. It's a spectacular data base program for direct-response mail-order firms. Myers' program costs $130, plus $100 to buy Lotus Approach. I run the Institute for Christian Economics with it.
Why would the IRS want to buy this program? Simple: the IRS has the most effective direct-mail business on earth. The IRS mails out millions of "insufficient payment" letters each year, telling people to send in additional money, and it gets close to a 100% response. The IRS doesn't even have to pay postage!
Myers told the man that his program runs on Windows. He lost the order. The agent said that the office computers used only DOS.
Think that one through. DOS is not compliant. To make it compliant, you have to run it on the latest Windows 98 upgrade (which few Windows users have seen or will see).
Here is the government agency, above all agencies, that has to be compliant in eight weeks. If it isn't, the government will lose its revenue base when taxpayers figure out that the IRS can no longer find them.
But don't their employers have to make quarterly payments? Yes, but how much longer will there be employers? Y2K threatens the entire hierarchy of employment. Millions of unemployed people next year will find themselves in "independent contractor" status. They will not send in quarterly payments. Some employed people will be forced to start working in their off hours. We call this moonlighting. Will they report all their income if they think they will never be audited? Call this the moonlight sonata. It is always played very softly.
Then there is the small business that is facing bankruptcy. Will the owner send in a quarterly payments check -- assuming the banks are still up -- when the money sent in will bankrupt it? Or will small businessmen take a chance? Why pay if the IRS can't find them, can't retrieve files, can't know if someone has paid or not?
The IRS works on fear. Most people pay because they think they may be audited. But they will cheat if they think they will not be audited. In a time of crisis, they will join a quiet, unorganized, worldwide tax revolt.
MASS INFLATION IF BANKS STAY UP
The man who persuaded the U.S. government to adopt income tax withholding in 1943 is long forgotten today. He was a long-time senior bureaucrat in the Rockefeller empire. Beginning in 1922, at age 26, he went to work for the Laura Spellman Rockefeller Memorial Fund. He had been with the Carnegie Foundation the year before. In 1923, he took over the Rockefeller-funded Social Science Research Council. He name was Beardsley Ruml.
Through the wonders of the Web, we can read the 1942 Treasury paper that pushed this legislation:
It identifies Ruml as the author.
David Brinkley -- yes, THE David Brinkley -- has written an excellent brief history of the U.S. income tax. He also identifies Ruml as the mastermind of withholding. Brinkley writes: "So it came that the government had -- and still has -- an artesian well pouring forth a golden flood of money requiring no effort on Washington's part."
One more sidelight. Ruml needed a technician to design the specifics of the plan. Fortunately for him, there was on the Treasury's staff a very bright, very aggressive young economist fresh out of the University of Chicago. His name was -- and still is -- Milton Friedman.
Ruml was Chairman of the Board of Directors of the Federal Reserve Bank of New York, arguably the most important position in American banking. He was at the same time treasurer of R. H. Macy & Co., the huge New York department store. Not bad! Don't you wish you could have a two-income deal like that?
Ruml gave a speech to the American Bankers Association in 1946. It was a summary of a major theme in his 1945 book, TOMORROW'S BUSINESS. He argued that federal tax policy was important for setting social priorities and restraining inflation, but monetary policy could generate all the revenue that the government needed. The Federal Reserve could simply create the money, buy government debt, and the Treasury would spend it into circulation.
This is the fall-back position of the government. This is the original quid pro quo of central banking that goes back to 1694: the founding of the Bank of England. The central bank promises to buy the debt of the central government as the buyer of last resort. It simply creates the money out of nothing.
If the IRS goes down, as it appears that it will, then the banks, through central bank purchases of government debt, will fill the gap. Digital money spent into circulation by the federal government will flood the economy. We will get mass inflation. At that point, you had better be out of digital money and into gold coins, silver coins, and goods. Paper money will depreciate, at least until it becomes clear to sellers that paper money is limited in supply compared to digital money.
But will banking survive? It's as computerized as the IRS is. There is a very real possibility that the banks will close, early next year, in an international cascading cross default: banks unable to settle accounts wuth each other. If they do close, the public will not be able to send digital money to the IRS or any state government. People will have no digital money. There is no way on earth that the IRS will be able to collect taxes if its computers are out of kilter and the banks are closed.
This means the end of every government that is dependent on checks. Call it the end of government as we know it, or TEOGOVAWKI (pronounced tee-oh-guv-AWE-kee), except as an extension of the military. Martial law: that will be the only civil law we have.
This could happen in a matter of weeks. It all depends on the digits. I do not trust the digits. Two of them are missing.
Ruml's scenario depended on accounting: the IRS and the banks. This is what y2k threatens today: men's ability to make estimates of economic value in the absence of digital money and accurate records. We live in an information age this year. We may not live here in six months. From the evidence I have posted on my site for almost three years, I conclude that my "may" is really a "will not." I do not see how accurate information at today's computer-supplied low prices can be maintained throughout 2000.
MASS DEFLATION AND HOW TO MITIGATE IT
If you do not have digital money, what will you want to own next year? Gold, goods, and currency.
But gold and goods are the hedges for mass inflation. How can they be also hedges for mass deflation?
As the threat of collapsing bank liquidity becomes obvious to investors, especially the very rich, they will seek out a form of liquidity that does not depend on digits. That means gold. It is the one asset that can provide liquidity in a society that has lost its digital money. Silver will work locally, but it is bulky. The very rich cannot protect enough of their wealth with silver. Neither can central banks.
Why own goods? Because with the breakdown of money, there will be a breakdown of law and order. If you can find a seller of goods that are not life-sustaining, he will no doubt sell cheaply for currency or even food. But how will you find him? Also, why will you be buying today's superfluous goods? Will you really need a new multimedia entertainment center?
What will not be cheap are life-sustaining goods. I think fuel will be very expensive. So will water filters.
You should buy the things that you know you will need whenever you can locate them. Buy them now, before their imminent scarcity becomes obvious to your competitors.
The tough decision is currency. Mass inflation will cut its value. Mass deflation will increase its value. You can consume goods. Gold will work in a breakdown either way. Currency is a tougher call.
I think we are more likely to get deflation than inflation because of the vulnerability of banking. But I could be wrong. If the banks survive, they will multiply digital money. The Federal Reserve System will have to buy so many government bonds that the new money will flood the system through the fractional reserve process.
Of course, the FED could offset this increase in high- powered money by raising bank reserve requirements, but if it tries this, it will bankrupt too many commercial banks. So, the FED will be caught between a rock and a hard place.
REFUNDS AND LEGITIMACY
The tax withholding system rests upon the IRS's demand that taxpayers pay in more than they will owe the next year. This creates a kind of IRS piggy bank: forced saving at zero interest. (I'd call it a hoggy bank.) The taxpayer has to file a tax form to get his refund. That's how the IRS keeps track of people.
Destroy the typical taxpayer's hope in a refund, and you will create a tax revolt. That is why Rossotti keeps talking about refunds. If the public figures out that the money is going into a digital black hole, to be lost in cyberspace, people will stop paying. They will know that they will not get their money back. They will fight to keep from sending in any money. They will claim more exemptions. They will not report side income. They will cheat -- just as the government since 1943 has cheated them by extracting interest-free extra money.
If the IRS goes into gridlock in a wave of confusion, late refunds, and lost records, it will lose its legitimacy. People will fear it less and hate it more. Y2K threatens the U.S. government as nothing has since the Civil War. It threatens the legitimacy of the tax collection system.
The second month that granny doesn't get her Social Security check, the system will lose its legitimacy.
If health care providers are not paid, they will stop treating anyone who can't pay immediately. They will pull out of the Medicare system. They will not be blamed by politicians, as they would be today. Government-funded health care will lose its legitimacy. And most hospitals will go bankrupt.
If the system cannot give, it cannot expect to take. But if it cannot take, it cannot give. The flow of funds is the heart of legitimacy for the modern welfare State. Y2K threatens this flow of funds.
Tax compliance relies on the statistically insignificant threat of an audit and negative sanctions. For the cheating taxpayer, the risk of an audit is low, but the stakes are high.
Now, consider y2k. The public is being told that the risk is low, but the stakes are high. This produces public complacency. Nobody changes his or her behavior. But the day that the risk is perceived as high, people's behavior will change. They will panic. This is what the politicians and bankers fear most of all: public panic.
If the risk of getting caught is low, but the stakes are also low, people will stop paying their taxes. Why will the stakes be low in 2000? Because y2k will gum up the IRS. The IRS will not be able to get big judgments in tax court against millions of cheating taxpayers, who will plead ignorance. There is safety in numbers. The more people who pull out, the lower the risk and the lower the stakes of non-payment. Y2K will motivate millions of people to pull out.
This is the threat in both banking and in tax collecting. The phrase, "pull out," terrifies those who run the system.
The threat of cascading cross defaults is far greater than the threat of a bank run. Depositors can be stiffed by the banks. Politicians will support this in the name of national emergency. But when bankers stiff each other across borders, there is no remedy. The banking system will shut down. It will take most other systems with it.
The division of labor will collapse.
For the IRS, the threat of a massive pull-out is very great. Once the IRS loses its clout because of its digital blindness, it will never get it back. The IRS is hated. It is feared. Once it is seen as paralyzed, it will not be feared. But it will still be hated.
I think we must prepare for the disappearance of digital money. Too many computerized systems are at risk. There will be more announcements like Rossotti's: "Yes, we're compliant -- fully compliant -- but we have not finished our inventory."
This is doublespeak. The public doesn't recognize it as doublespeak. Here is singlespeak: "Our computer is down." That, the public will eventually recognize. It means broken contracts, broken dreams, and broken lives. It also means broken governments.
What will replace broken governments? Local governments. If the banks close, the Articles of Confederation will look like a centralized system.
Support your local sheriff. He will be the only person between you and chaos on one side and the unrestricted military on the other.
* * * * * * * * * *
Because of the importance of this topic, and because time is running out fast, I encourage you to forward this report to anyone you think should read it.
+ + + + + + + + + +
For a free subscription to this report, click the address and write the word SUBSCRIBE in the message box (the big one). Leave the subject box blank (the small one).
-- Bill P (email@example.com), October 30, 1999.
Thank you, Bill P.!
-- profit of doom (firstname.lastname@example.org), October 30, 1999.
While I do not share North's loathing of the IRS, I can't fault his analysis: it looks as though this puppy is down for the count. Combine that with the snip at the 34 Federal Work Days thread by Cheryl on this board to the effect that (paraphrase)" We will keep silent while we drive this ship onto the Iceberg untill the Screaming starts...We will burn in HELL." (caps in the original)
It's beginning to look and feel grim!
-- K. Stevens (kstevens@ It's ALL going away in January.com), October 31, 1999.
and I'm STILL waiting for last years refund.....I just KNOW some IRS employee is writing it out by hand for me fer sure this week......(gotta bridge to sell ya too)....sigh....
-- farmer (email@example.com), October 31, 1999.
Profit, No big surprise. We've been headed toward the iceberg for a long time. Some have the lifeboats filled and ready to go. The top deck is filled with the soon-to-be shocked and petrified. HOLD ON, BABY....
-- PJC (firstname.lastname@example.org), October 31, 1999.
When the government announces that all the people holding Greenbacks (US dollars) that are not 'in the bank', must deposit them back into a Bank or Federal Credit Union by such and such a date - BEWARE.
They may not be bluffing.... that's their fair warning that on that 'date' the Feds will be issuing a 'new' currency and making Greenbacks worth only the paper they're printed on....
How else will they get control of money again should there be bank runs, mass withdrawls, etc. by year end?
The Gary North article was excellent and right on. However, he missed that one area..... the Feds will not allow the loss of control of the US Dollar. Buy assets, gold, silver and yes, hold dollars. But watch what they do very closely and be prepared to jump back in with your dollars should the need arise. This could and will happen very quickly....
-- Mark (email@example.com), October 31, 1999.
North's "reality check" is a sequential series of unlikely speculations, ultimately founded on a few critical false assumptions. And wouldn't you know, the end result is *exactly the same* as North has been incorrectly predicting for the last 20 years! You'd think sooner or later North's fans would stop and think "Hey, maybe something's wrong here!" But no, this crapola is described as "excellent" and "right on". Sheesh.
I just don't have the energy to deconstruct this nonsense. Besides, grade schoolers could do so if they were rational, and those who want to hear North's spin wouldn't listen anyway. Maybe when North turns out to be dead wrong once again, it'll be blamed on Yet Another Conspiracy?
-- Flint (firstname.lastname@example.org), October 31, 1999.
I am still at a loss as to why anyone would be upset at not getting a refund check from Willie and the boys. I think you have to be pretty lame to not max out your exemptions to start with - thereby enabling YOU to keep YOUR money in the first place, rather than give it interest free to our governing assholes. I'd much rather be in the position of possibly owing a few bucks with their computers going POOF, than to have them owing me, and seeing that go POOF! The FED is a scam of unbelievable magnitude, and all of Washington is attending the party.
-- Mojonoone (email@example.com), October 31, 1999.
Flint, of all of the poor arguments that you have ever presented, your post above must surely be the absolute worst. Yes, there is certainly a lot of speculation in the latest Reality Check, but it is certainly based on some very basic facts.
Nobody knows what is going to happen when we enter the year 2000 with systems that are not ready for Y2K, such as the IRS's clearly will not be, in spite of happy-face claims to the contrary -- which are now demonstrated to be laughable. And I seriously doubt if the IRS is atypical, either.
-- Jack (jsprat@eld.~net), October 31, 1999.
I didn't bother to make an argument. I merely pointed out the glaringly obvious. I also observed that none are so blind as will not see. As you demonstrate. Should I really spend an hour disentangling North's disinformation so that you can ignore my efforts and believe what you want anyway? Not worth it. Have a nice catastrophe, call me when it's over, OK?
-- Flint (firstname.lastname@example.org), October 31, 1999.
Flint has a right to express his opinion as everyone here has the same right. The fact that he never makes a very good case for his opinion even when he tries really hard to do so should in no way affect his right to post what he wants. Doomers should take note that Flint's real purpose is to disrupt. Every time he posts it disrupts.
Nice work, Flint, whoever you are.
-- ..- (email@example.com), November 01, 1999.
Am I the only one to smell the obvious oxymoron???
Reality check - Gary North????
-- Deano (firstname.lastname@example.org), November 01, 1999.