LOS ANGELES TIMES: "Experts Still Fret Post-Y2K Pains" - 'Some worry that global economic engine will have trouble regaining cruising speed after gearing down for changeover'; 'Analysts said the United States and other developed countries have become more vulnerable to snowballing problems...'

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Saturday, January 1, 2000

Experts Still Fret Post-Y2K Pains

Technology: Some worry that global economic engine will have trouble regaining cruising speed after gearing down for changeover.

By PETER G. GOSSELIN,
Los Angeles Times Staff Writer

WASHINGTON--The world economy normally runs like an immense game of musical chairs in which the music goes on and on.

But the music was expected to slow at least in some places Friday night either as computers grappled with the changeover to 2000 or as people took the precaution of not overworking them.

As the date change circled the globe, no immediate catastrophe was reported and experts were increasingly confident that none would occur.

But there remained the intriguing question: What if the music doesn't return to its usual rhythm, with computers resuming normal operations and the world getting back to its normal frantic pace?

That, experts say, will take weeks to answer.

"By the time this is all over, we should know a lot more about how dependent we are on information technology and how closely woven we are globally," said Bruce W. McConnell, director of the United Nations' International Y2K Cooperation Center. "We may be considerably more of both than we'd realized."

The economic world always takes a breather at New Year's but nothing like the whopper it was taking--mostly out of caution--at midnight Friday. Trains were being stopped in their tracks. Planes were being kept from the sky. Ships that normally would be headed to port were cruising just outside territorial waters.

With so many activities slowing so dramatically, the planet faced a big job just getting back to normal.

"It could be that everything goes smoothly but I'm skeptical," said Edward Yardeni, chief economist of Deutsche Morgan Grenfell in New York and an early Y2K pessimist. For all the talk by countries and companies about having fixed the computer glitch, he said, "we've never stress-tested the system and we don't really know how it is going to do."

What we do know is that the most cataclysmic scenarios seemed to be slipping into the realm of "might-have-beens" by Friday night. The darkest worries fell into three broad categories and there was little evidence in the hours leading up to the New Year that any of them was coming true.

* Technological apocalypse: Some experts had warned that computers, virtually all of which use two digits instead of four to represent the year, would get confused when the calendar flipped from "99" to "00" and start shutting down lights, phones, factories and financial systems around the world.
But 2000 arrived in Asia--most notably in computer-dependent Japan--with no signs of serious trouble. "We've had no problems with rollover or operations," said Jill Johnson, a spokeswoman for Exxon-Mobil Corp., the world's largest oil company with facilities throughout the Far East.

* Consumer panic: Some worried that frightened consumers would strip stores of their goods and banks of their cash. The result would be a breakdown of the distribution system and freeze-up of world finances.
But consumers both in the United States and abroad seemed serenely unconcerned. U.S. banks and the Federal Reserve, which had stockpiled more than $220 billion in cash in case of trouble, were stuck with unwanted inventory. Supermarkets reported some increase in sales of emergency provisions such as water and batteries but nothing that could not be handled.
"It's almost as if Y2K hadn't happened," said Fed governor Edward W. Kelley, who was in charge of the U.S central bank's planning for the calendar rollover.

* Economic ripples: Some feared that companies, rather than consumers, would panic, build up their parts inventories and then stop buying in January and February, sending the stock market into a tailspin and the economy into recession.
But economists and policy-makers found almost no signs of an inventory buildup, even among firms that may have wanted to increase supplies. "They've been frustrated because consumer demand has been so strong," said Wes Basel, a senior economist with RFA Dismal Sciences Inc., a West Chester, Pa. forecasting firm.
"I'd expected to see an inventory buildup, but it hasn't happened," added Kelley, the Fed governor.

Although the risk of an abrupt economic break appeared to be fading last night, there continued to be worry: smaller, seemingly isolated glitches snowballing into something serious.

Analysts said that any problem would emerge only slowly over the next several weeks. In the case of consumers, they said, it might first appear as nothing more serious than a string of billing mistakes.

"It's hard to aggregate these kinds of individual events to see the economic effect," said McConnell of the U.N. Y2K center. "I'll know there's a problem if I get a lot of bills dated 1900 and have to spend a lot of time talking to customer service representatives."

Analysts said the United States and other developed countries have become more vulnerable to snowballing problems as they have relied more heavily on computer networks and as their economies have grown increasingly closer.

In manufacturing, the vulnerability has taken the form of just-in-time production methods that require suppliers from around the world to deliver parts just as they are needed.

In finance, the risk has grown with global trade, which now requires $4 trillion in electronic payments to flash around the world daily. In the case of consumers, it has ballooned with the increasing use of credit cards.

A shiver went through the credit card industry earlier this week when small retailers in England discovered that they could not process transactions after a Y2K-related problem knocked 20,000 swipe-card machines out of commission.

U.S. credit card executives acknowledged that the maker of the English machines, Racal Electronics, also produces many of the devices used in this country but insisted that there was no danger.

If the assurances hold, Americans will be able to continue their courtship with consumption in the new year. If not, the economic music could change rather dramatically.

[ENDS]

-- John Whitley (jwhitley@inforamp.net), January 01, 2000

Answers

To understand how imported corrupt data can affect the world financial markets leading to the possibility of gridlock check out the "Visa Is Toast" thread in the Banking archives.

-- Andy (2000EOD@prodigy.net), January 01, 2000.

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