http://hv.greenspun.com/bboard/q-and-a-fetch-msg.tcl?msg_id=0057ji

"In my estimation in late April of 2001, we have arrived at around a 4 on the Y2K Impact Scale. (The Impact scale that I am referring to is the version described in Part 1 of my White Paper at http://www.gwu.edu/~y2k/keypeople/gordon.) Unless the part that Y2K-related problems is playing is understood and addressed, it would not surprise me if we reached a 6 or 7 by April of 2002."

-- Buddy (buddydc@go.com), April 30, 2001

Answers

YES!!! Wahooo!! Get your preps ready, folks!! This is it!!! You pollies are gonna be dead for sure, this time!!

-- (vindicated@doom.er), April 30, 2001.

Has anyone checked to see if Iona and Paula have ever been seen together?

-- Uncle Deedah (unkeed@yahoo.com), April 30, 2001.

unc, lol.

-- SUMER (shh@aol.con), April 30, 2001.

Sad as it is, she's serious.......

Wait a sec, maybe that should be 'humorous as it is, she's serious...'

Deano

-- Deano (deano@luvthebeach.com), April 30, 2001.

Paula's impact scale:

Figure 3. Impact of Year 2000 Technology Problems in the United States

0 No real impact

1 Local impact for some enterprises

2 Significant impact for many enterprises

3 Significant market adjustment (20%+ drop); some bankruptcies

4 Economic slowdown; rise in unemployment; isolated social incidents

5 Mild recession; isolated supply/infrastructure problems; runs on banks

6 Strong recession; local social disruptions; many bankruptcies

7 Political crises; regional supply/infrastructure problems, disruptions

8 Depression; infrastructure crippled; markets collapse; local martial law

9 Supply/infrastructure collapse; widespread disruptions, martial law

10 Collapse of US government; possible famine

-- Buddy (buddydc@go.com), April 30, 2001.

Gordon will milk her white paper for another decade or two. The real shame is academia will allow her this nonsense.

-- Remember (the@ld.forum.com), April 30, 2001.

To all the pollies out there, we are at 4 on paula's scale and heading towards an 8. Look at the price you are paying for fuel,utilities,etc, massive tensions in the middle east and asia, massive layoffs and major business slowdowns, major abuses of citizens 2 nd admendment rights by police nationwide, the world economies are now in a controlled state economic freefall. These are very dangerous times. Prepare your homes and communities now to ride out a long period of economic uncertainty. Y2k was just a training wake up call, were entering the real thing soon. Use what you learned from the y2k prep experience and start your preparations again. Do as much as you can each week until you hit your prep goals. Five to seven years of a severe recession/ depression is very possible. All the warning signs are present. Their may be only 6 months to a year to prep left if that much so get busy. What is sown is what will be reaped. To not prepare after you have been alerted will be to your own folly. Bigger things that are amiss than y2k are happening on a macro scale. And I am not fear mongering do a reality check, doesnt take a rocket scientist to figure out that the economy is heading for a train wreak.

-- y2k aware mike (y2k aware mike @ conservation. com), April 30, 2001.

"Ain't got time to wonder why, WHOOPEE! We're all gonna die!"

Man, it's taken a while but we've come full circle. Now, what do you suppose we'd see if we just opened our eyes? Do we dare? Nahhh...

-- Flint (flintc@mindspring.com), April 30, 2001.

sigh...Flint, have you ever heard of a fungus growing on white rice that would parallel the effects of ergot poisoning on rye? I'm afraid to eat the rice. It looks ok, but some of this has been packed for two years now. It would be a real bummer if the world went to hell before I get the answer to this question. It would also be a real bummer if I just eat the rice and die from it while the rest of the world trundles on with little negative change. Can you help?

-- helen (prepped@all.times), April 30, 2001.

Mike,

The kindest possible interpretation of Paula Gordon is that she is not very bright. The price Americans pay for gas is lower in real terms than the price they paid in 1950. The unemployment rate is amazingly low and inflation modest. The world economy is in better shape now than the late 90s. The American economy is not in a recession. The current estimate of GDP is growth of 2 percent, double the consensus estimate from earlier this year. Yes, the economy is not surging like in the late 90s, but it is still growing. These are economic facts, not the speculative fictions of Paula Gordon.

What you are now experiencing is a normal part of the business cycle... a time no more "dangerous" than any other post-boom lull. I would tell you to relax, but I'm not sure it would do any good.

-- Remember (the@ld.forum.com), May 01, 2001.

Mike,

Let go of the fear man. I have, since I knew you back in the old TB2K days, and life is so much richer and more exciting when your thoughts look for the good each day, rather than the bad.

-- Uncle Deedah (unkeed@yahoo.com), May 01, 2001.

And to think I sold all of my rusty hubcaps to a scrapyard thinking that Y2K was over. Damn!! How the hell am I going to drink dog piss without a rusty hubcap??????

-- Rusty (rusty@hub.cap), May 01, 2001.

Unk

Man, that was beautiful. Truer words were never spoken.

Deano

-- Deano (deano@luvthebeach.com), May 01, 2001.

Unk, my thoughts are positive, but the rice...the RICE...is it ok to eat? Two years old, never got wet, no temp extremes.

-- helen (ag@in.and.again), May 01, 2001.

Helen,

I don't know hon, I tend to err on the side of caution myself and throw away food that I am unsure of. My rice and pasta reserves have been in the freezer in the garage for about a year and a half now, so I am pretty confident that I can use them safly for a while longer. Was the rice in question nitro packed? If so I think it would be OK, but don't take my word for it please.... I would hate to be responsible for you taking a fungus induced acid trip because I said to eat yer rice, heehee.

-- Uncle Deedah (unkeed@yahoo.com), May 01, 2001.

I would eat the rice helen. I'd also plan on staying home for 12 hours or so. Just in case. Or you could send a sample to me. I'm the author of a little known book: Food Tasting for Fun and Profit. I won't charge you. Unless I have no fun. In which case you can't afford my fee.

Or you could invite over some folks who you think might benefit from a little mind stretch. Cook a big pot of red beans and rice. Have at it.

FWIW, I've not had a lick of problems with my grains, grasses and beans. Packed 'em with the dry ice method.

-- Rich (howe9@shentel.net), May 01, 2001.

Robin Cook, M.D. wrote a novel that revolved around ergot poisoning in both a past and present story line. From what I understand, the victims turned into werewolves ...?

I'm gonna go for it.

-- helen (howling@the.moon), May 01, 2001.

Helen, the rice is fine. Do you know how long it has sat in wharehouses and store shelves???????? Don't worry about it. Rye seeds and mold were at the bottom of the Salem Witch Trials too, BTW

Nah, I'm just kidding. That was a novel I read.

-- Marg (okay@cutaway.com), May 01, 2001.

Helen,

Counter to my resolution to never post on the Biffy forum, I will offer my advice as if your post were serious: you need have no fear of eating rice two years old if it has been kept dry in an airtight container. Rice will last even 5-10 years if packed in the absence of oxy or along with oxy absorbers. (Any other old timers around?)

Thanks, Uhhmmm...

-- Uhhmmm... (JFCP81A@aol.com), May 01, 2001.

Thank you, Uhmmm. I AM serious. I have maybe a half ton of rice and I hate to waste it. I thought all you guys were coming to dinner a couple of years ago. :)

-- helen (home@night.sometimes), May 01, 2001.

"The world economy is in better shape now than the late 90s. The American economy is not in a recession. The current estimate of GDP is growth of 2 percent, double the consensus estimate from earlier this year. Yes, the economy is not surging like in the late 90s, but it is still growing. These are economic facts, not the speculative fictions of Paula Gordon.

What you are now experiencing is a normal part of the business cycle... a time no more "dangerous" than any other post-boom lull. I would tell you to relax, but I'm not sure it would do any good.

-- Remember (the@ld.forum.com), May 01, 2001."

"Remember," are you an expert? Better read from the experts... BTW, I've got several articles from "experts" pointing to a recession. Keep talking and I'll post those too.

Saturday April 28 3:54 PM ET Stocks View: Slowdown or Ugly Recession?

By Pierre Belec

NEW YORK (Reuters) - The U.S. economy is changing and Wall Street is telling those bruised investors that there may be something more serious ahead than just a run-of-the-mill slowdown.

After being pumped up for five years, stocks have crumbled over the past 12 months. Despite several recovery attempts, a lot of investors still sense that the economic environment is rapidly deteriorating and the nation could be slammed by a recession.

``Avoiding a recession at this stage in the U.S. would be unprecedented given the reading we now have,'' says Lakshman Achuthan, managing director of the Economic Cycle Research Institute (http://www.businesscycle.com).

``In fact, our weekly leading indices look worse now than they did during the recession of 1990 when we last called a recession,'' says Achuthan. ``Never in the past have our indices looked as bad and we've been able to avoid a recession.''

If Achuthan is right, there would seem to be little that Alan Greenspan (news - web sites), the nation's Maestro of economics, can do at this stage of the game to prevent a recession from stunning the world's once healthiest economy.

What is the Economic Cycle Research Institute's claim to fame? For one thing, its founder was Geoffrey H. Moore, ``Father of Leading Economic Indicators,'' a monthly gauge that forecasts trends in the economy three to six months in advance. Moore's other credit is that he was Greenspan's economics teacher at New York University.

GLOBAL CONTAGION?

In a preliminary report, the Commerce Department (news - web sites) said on Friday the gross domestic product rose by a surprising 2 percent annual rate, as strong consumer spending offset weakness in business investment.

But some analysts thought that the first of a series of estimates of the nation's growth disguised weakness in key areas of the economy. The thinking was that the way the economy is going, GDP (news - web sites) could be scaled back later.

With the world's biggest economy shaky, there's also the danger that the global economy could be taken down, the research firm says.

The International Monetary Fund (news - web sites) chimed in this week to say that the global economy was at a critical juncture. ``The world economy is certainly in a quite critical phase,'' IMF Managing Director Horst Koehler told the group's spring meetings in Washington. ``There is a deceleration of economic activity in the United States, which is stronger and faster than most had expected a month ago, and there is no region all over the world which (is) taking up the slack which means there is a slowing down of the global economy.''

Global recessions are particularly problematic because there is no locomotive to pull the other weak economies out of recession.

Just last September the IMF forecast U.S. growth at 3.2 percent in 2001, but the global lending institution apparently misread the impact that Greenspan's boom-busting rate increases between 1999 and 2000 would have on the American economy. Now, the IMF is forecasting growth of just 1.5 percent, the slowest in a decade, and 2.5 percent in 2002.

The U.S. gross domestic product's annual growth has spiraled from an impressive 8.3 percent to only 1.1 percent from the last quarter of 1999 to the final quarter of 2000.

The hope is that the Fed's four interest-rate cuts since the beginning of the year will mitigate the economy's downturn, which could mean a shallower recession.

Indeed, that may already be happening -- if the early estimate of growth in the first quarter of 2 percent holds up.

The National Bureau of Economic Research, the official arbiter of U.S. recessions, said in early April that there is no recession. But the research firm has been off by a country mile in dating recessions before. During the last recession, it announced in April 1991 that a recession had begun in July 1990 and finally disclosed in December 1992 that it had ended in March 1991.

Lakefeld Economic Cycle Research Institute has a good track record in spotting changes in the economy. Its Weekly Leading Index, which dates back to the late 1980s, gives a snapshot of what's currently happening in the economies, instead of reporting what took place 30 or more days before. The ECRI was dead on when it forecast a U.S. recession in 1990 and the call was done in real time.

The current massive cuts in the American jobs market, which are making headlines almost daily, will further shake consumers' confidence in the economy, the firm says.

Indeed, the pessimism is so thick that you could cut it with a knife. Consumer confidence tumbled in April as U.S. households turned more gloomy about current and future business conditions.

Recession Climate Spreading

The Economic Cycle Research Institute says recessions now appear to be unavoidable in the United States, Japan, Korea and Taiwan, which together represent half of the world's gross domestic product.

``What's troubling about this thing is that there are no obvious areas of stronger or rising demand in other parts of the world that could help offset the weakness being felt everywhere else,'' says Achuthan.

In the 1990-91 recession, the world experienced an 'English-speaking'' recession -- the United States, Britain, Australia and Canada went through slow times while non-English speaking countries -- in Asia and continental Europe -- continued to grow, thus creating demand that offset the weakness in other countries.

``Therefore, that recession was not as bad as it would have been, had all economies been falling,'' Achuthan says.

The ECRI estimates that recessions are also likely to hit Mexico and Australia while serious slowdowns are expected in Canada, Germany, Spain and Switzerland. Growth will moderate in Britain, France, Italy and Sweden, it says.

Only two economies are currently bucking the trend, New Zealand and India.

The institute uses its Weekly Leading Index to spot turning points in business cycles. Last fall, the gauge signaled the United States economy moved lower and then it recovered in January 2001 when the Fed started lowering interest rates. But the WLI has since been on a steady downhill slide.

The index can flag down a recession three months before the more famous Leading Economic Indicators because it is frequently updated with new information, the institute says.

The stuff that goes into the WLI includes a nation's money supply and stocks and bond mutual funds, which provide a reading about how rich people feel, i.e. the wealth effect.

It also tracks The Journal of Commerce-Economic Cycle Research Institute Materials Price Index, a commodity index that is sensitive to the industrial business cycle. The index measures the spread between U.S. Treasury and corporate bonds, which reflects shifts in Wall Street's sentiments. Mortgage applications and weekly jobless claims also go into the mix.

The clinical definition of a recession is two straight quarters of declines in growth. On average, recessions last 10-1/2 months. The worst one lingered for 16 months between 1974-75 because it was a contagion that bled all of the world's economies.

Recessions Tough To Spot

Recessions can be tough to figure out. Often, experts can't know how deep an economy was in recession until it was in the middle of one. In other words, they can only be identified with hindsight and the end of a recession can only be measured by the last quarter's growth rate.

A worsening unemployment rate is a good clue that a recession is brewing. In the U.S. case, the jobless rate has increased from a low of 3.9 percent and now stands at 4.3 percent. During the 1990-91 recession the jobless rate was close to 7 percent.

Indeed, Wall Street has its work cut out. First it has to figure out if the economy is in the jaws of a recession. Next, when will the economy grow back to its potential of 3.5 to 4 percent growth and when will corporate earnings pick up again. Historically, the stock market leads the economy by six to nine months.

-- gold finger (goldfinger@smellthegold.finger), May 01, 2001.

Yes, I am an expert. I remember how the so-called experts at Gold Eagle were selling gold over the Y2K scare. I note, with some amusement, that the spot price is around $265 today while the Dow is 10,989. Those genuises at the metals sites were predicting gold would break 1,000 and so would the Dow. If we do have a recession (and we may), gold will still be a lousy investment.

-- Remember (the@ld.forum.com), May 02, 2001.

Who mentioned purchasing gold? Not me. BTW, I don't own any gold if that's that your getting at. You stated "The world economy is in better shape now than the late 90s." OH REALLY? Do tell how many trillions of dollars have been lost in the NASDAQ, DOW, S&P..... How many thousands are losing their jobs everyday due to the economic downturn. Isn't it ironic that Allen Greenspud just a year ago was trying to slowdown the economy by raising interest rates, and now he has lowered interest rates 4 times in the past 5 months! Never before have you seen this happen. Greenspud is scared, and it's showing.

-- gold finger (goldfinger@smellthegold.finger), May 02, 2001.

If you don't own gold you may be smarter than your posts. In January 1996, the DJIA was below 6000. By January 1999, it was approaching 10,000. Since the middle of 1999, the market has been relatively flat. In short, there has been far more money made than lost in the market if you consider the past decade.

Ah, the NASDAQ. In January 1996, the NASDAQ was around 1200. Today, the value of the NASDAQ is nearly double the 1996 mark--better performance than the Dow. Yes, there was a speculative bubble with the dot.coms. This bubble grew and burst and now people are treating Internet companies with sanity. The speculative bubble is over and no lasting economic damage was done.

The unemployment rate in the early 90s reached almost 8 percent. Today, the rate is around 4.3 percent. The gain in average hourly earnings for the last 12 months is 4.3%, its highest since the second quarter of 1998.

And finally, yes, the Federal Reserve has moved from tightening monetary policy (to control inflation) to loosening the monetary policy (to stimulate growth). In fact, this is the history of the Federal Reserve. You can crow about the sky falling, but here's a bright thought for you... most people keep their jobs during a recession.

-- Remember (the@ld.forum.com), May 02, 2001.

Maybe you'll learn something from this primer, it may make you smarter than your post.

Fair use for educational/research purposes only!

A Primer on Depressions

By John H. Makin

A depression follows a period of euphoria about the outlook for the economy and the future earnings of "new" companies. The euphoria becomes unsustainable, and the stock prices of the new companies collapse. Large wealth losses replace large expected wealth gains. Consumption growth slows, then turns negative, and stock prices of more companies fall because weaker demand erases pricing power and, with it, prospective profits. Demand falls further, and deflation sets in.

In a depression, the central bank discovers (to its horror) that stock prices, not interest rates, become the major transmission mechanism running from financial markets to the real economy. That is because after a bubble earnings fall faster than any central bank can, or will, cut interest rates, and when earnings, or more ominously, expected earnings, fall faster than interest rates, then stock prices fall.

Earnings expectations for NASDAQ companies have fallen by more than 75 percent in many cases. The Federal Reserve is expected to have cut interest rates by 2 percentage points by May, from 6.5 to 4.5 percent, or by about 30 percent. That would be a large move by historical standards, but not enough to stabilize equity prices. So the Fed is left looking powerless, cutting interest rates aggressively, but failing to stabilize equity prices.

Economists are very shy about mentioning the word depression. If they do mention it, they "hasten to add" that it is "contained," as in Japan, or that it "can’t happen here," as in the United States. I have used these words myself. But history, specifically the aftermath of the 1929 stock market crash in the United States and the aftermath of the 1990 Japanese stock market crash, offers little consolation to those claiming that depression is not inevitable after an investment-led boom that ends with a stock market collapse. In the United States after 1929 and in Japan after 1990, the only two instances in this century in which stock market collapses followed investment booms, depression resulted.

Yes, Japan is in a depression complete with rapidly falling prices, zero interest rates that are not low enough to stimulate spending, public works expenditures on counterproductive projects with negative marginal products, and paralyzed policymakers at the Finance Ministry and the central bank. The nightmare that Keynes wrestled with in The General Theory of Employment, Interest, and Money, an economic equilibrium consistent with self-reinforcing falling prices, employment, and output, has settled over Japan like an invisible cloud of poison gas. Little wonder that Kiichi Miyazawa, Japan’s elderly but still acute finance minister, uttered recently before the Japanese Diet that Japan’s government finances were close to a "catastrophic situation."

The Linkage between Financial Markets and the Real Economy

The bursting of an equity market bubble that leads to a prolonged collapse of the real economy is the manifestation of a most basic and enduring theme of macroeconomics: the linkage between financial markets and the real economy. A powerful negative shock to the financial sector, like the collapse of a stock market bubble, sets in motion a deceptively straightforward set of events that seems, somehow, to leave policymakers caught like deer in the headlights. Leading up to the bubble, a virtual prosperity mania sets in, with households contemplating undreamed-of wealth, firms bidding for and stockpiling precious skilled labor, and governments marveling at—and promptly spending—tax revenues that far exceed their most optimistic expectations. The end comes, as it did during the past year in the United States, after extraordinary events like expected, unfailing growth of 25 to 30 percent per annum have come to be seen as ordinary. That perception makes investors view as unremarkable the purchase of equities at prices 200 times current earnings, or at more than ten times the normal price-earnings multiple. Such pricing cannot be sustained.

The most recent and spectacular example of the insanity that companies equity market bubbles is the experience of Yahoo!, a company whose primary source of revenues is online advertising. Not only have Yahoo!’s profits failed to grow, they have collapsed—virtually to zero in 2001 with a hoped-for rebound to $60 million in 2002—down sharply from earnings of nearly $300 million in 2000. Since Yahoo!’s share price surged because of an expected perpetual acceleration of earnings growth, the reality of a sharp deceleration in earnings growth has brought the stock from a high of about $240 early in 2000 to $17 on March 9, the first anniversary of the 5000-level peak of the NASDAQ. The NASDAQ itself, with its collection of dot.com and Internet stocks, fell by 60 percent, from 5000 to 2000, from its March 2000 peak to March 2001. The Yahoo! swoon alone wiped out nearly $80 billion worth of wealth, while the more general NASDAQ collapse has erased over $2.5 trillion in wealth. Taken altogether, U.S. equity market losses over the past year have totaled over $4.5 trillion. That wealth loss amounts to about 60 percent of a year’s household disposable income and over 12 percent of total U.S. household wealth from all sources.

Bubbles Can Mislead Policymakers

An insidious feature of a postbubble period is the unusual and—at first—deceptively benign behavior of the real economy. Such benign behavior creates serious problems for policymakers.

The onset of the U.S. growth slowdown over the past six months manifests a classic "postbubble" pattern. Since excess capacity resulting from accelerated, bubble-driven capital formation quickly becomes a problem after the bubble bursts, capital-spending growth slows. Indeed, U.S. capital spending growth went from a 21 percent annual rate in the first quarter of 2000 to a negative 0.6 percent annual rate in the fourth quarter. The initial reaction of markets is to embrace the idea of a capital inventory correction that can be remedied quickly with lower interest rates. Many commentators, especially those eager to sustain flows into stock market investments, suggest that the slowdown in capital spending is a healthy sign of the economy’s ability to regulate itself. The central bank consoles itself with similar notions of the therapeutic effect of a slowdown in capital spending. Although consumption slows, it does not collapse in an environment identified as a beneficial correction. Indeed, U.S. consumption spending, which grew at an extraordinary 7.6 percent annual rate in the first quarter of 2000, slowed only to a still-respectable 2.8 percent annual rate in the fourth quarter.

But the extraordinary investment surge that characterizes an investment-led boom carries the seeds of its own destruction. Normally, investment growth accounts for about one-sixth of the total growth of the economy. From 1959 through the end of 2000, investment growth accounted for 0.6 percentage points of an average 3.5 percent growth rate. However, during the twelve quarters ending in the first quarter of 2000, the peak of the investment boom, investment spending accounted for 1.5 percentage points of the 4.6 percent overall growth rate, or nearly a third of all growth. At the end of an investment boom, a sharp slowdown in investment spending produces an unusually sharp drop in GDP growth. The 5 percent annual growth rate at the beginning of 2000 became a 1 percent annual growth rate by the fourth quarter of 2000, with an unusually large portion of that slowdown attributable to a slowdown in investment growth.

The additional focus of a postbubble growth slowdown on investment spending creates a dangerous complacency among both investors and policymakers. Since consumption is two-thirds of total spending, it is easy to pin hopes on the notion that lower interest rates will support consumption and overall spending growth. Then, too, there is the usual denial that accompanies the shock of a rapid sell-off. In January of this year, retail sales surged by 1.3 percent, enough for an annual growth rate above 15 percent. But in February, retail sales dropped by 0.2 percent—resulting in a negative trajectory of year-over-year retail sales, down to 2.7 percent, just enough to cover inflation. Ominously, the consumption boom in January was financed by a $16.1 billion jump in consumer credit. American households, which collectively at the end of last year had lost more than $4 trillion on their equity holdings, entered a period of intense denial, splurging on automobiles, furniture, appliances, and clothing and paying by credit. The resulting "firming" of the economy together with firm growth of wages and employment contributed to an environment that kept the Federal Reserve from easing rapidly enough.

Consumption Will Fall Next

The outlook for U.S. consumption growth is bleak. In the November Economic Outlook, I asked: "How plausible is the heretical yet immensely dangerous notion of a sharp drop in U.S. consumption? If the stock market merely stays at current levels, it is quite plausible. If it falls another 15 or 20 percent, it is a virtual certainty." Since November, the Wilshire 5000 Index (the broadest measure of equity value) has dropped by 18 percent.

The linkage from wealth to savings and consumption suggests strongly that large equity losses will cut consumption spending as households add to savings out of income in an attempt partially to compensate for the severe damage to their balance sheets. During the 1990s, when capital gains came to augment and then to dominate saving out of income as the way in which American households accumulated wealth, on average the sum of saving out of income plus expected capital gains (calculated as a smoothed version of average annual capital gains during this expansion) constituted about 15 percent of after-tax household income. With after-tax disposable income equal to about $7 trillion, the 15 percent rule would call for $1.05 trillion in savings composed partially of capital gains and partially of savings out of income. If there were no capital gains this year, a full measure of savings would require a reduction in consumption by a full trillion dollars to achieve savings equal to 15 percent of disposable income. That, however, seems highly implausible, and indeed a look at past data suggests that in recessions, saving out of income and smoothed capital gains falls to 5 percent of disposable income, or about a third of the normal rate. But with zero capital gains, even a 5 percent increase would mean savings of $350 billion that would have to come out of consumption. That $350 billion is 3.5 percent of GDP; in other words, the drop in consumption growth during 2001 could subtract 3.5 percentage points from GDP growth.

With the sharp drop in investment spending subtracting 1.5 percentage points from GDP growth and the slowdown in consumption spending subtracting 3.5 percentage points from GDP growth, while falling exports from a global slowdown could subtract another half of a percentage point from GDP growth, the drag on GDP growth during 2001 could total 5.5 percentage points. Even with a modest contribution of a half percentage point of growth from government spending, well above the average 0.2 percentage points contributed since 1991, a drag on this year’s growth of more than 5 percentage-points is entirely plausible. With the underlying average growth rate of 3.5 to 4 percent, the 5-percentage-point drag means that negative growth in the region of 1 to 1.5 percent is highly plausible. That’s a nasty recession.

The assertion that the United States could experience a year of negative growth is certainly a long way from saying that the United States will enter a depression. It is not moving—and need not move—inexorably in that direction. Rather, the United States is probably moving toward an unusually intense recession wherein the growth slowdown will be longer and deeper than many have been willing to admit. It is the dangers inherent in making the transition from unusually good times to unusually bad times that need to be recognized. Spending will remain depressed for some time as the realization sinks in that the acquisition of wealth requires some saving out of income and not simply the acquisition of "hot" stocks whose value seems to rise inexorably.

Aggressive Stimulation Needed

Policymakers need to move away from a state of complacency about the need for stimulative measures. In 1962, a Democratic president, John F. Kennedy, proposed tax rate cuts equal to more than 2 percent of GDP to stimulate economic growth. He did this at a time when the ratio of publicly held debt to GDP was 44 percent and the deficit was higher than 1 percent of GDP. The U.S. economy was entering an expansion, but Kennedy wanted tax reform and sustained economic stimulus from a better-designed tax system. Today, as the U.S. economy enters what looks to be a serious recession, a Republican president is proposing tax rate cuts and a modest fiscal stimulus equal to barely 1 percentage point of GDP while the ratio of publicly held debt to GDP is 33 percent and falling and the surplus is approaching 3 percent of GDP.

Today’s protests about tax cuts being too large because the debt paydown is threatened are the result of a dangerous, mistaken idea that somehow debt paydown caused the prosperity of the 1990s. In truth, the prosperity of the 1990s caused the debt paydown. Tax rate reductions are an even better investment in 2001 than they were nearly forty years ago in 1962. It is worth noting that although the Kennedy tax cuts were not enacted until February 26, 1964, three months after the assassination of the president, they helped to sustain three years of noninflationary growth averaging 6.6 percent from 1964 through 1966. The Kennedy-inspired tax and tax rate cuts of 1964 were part of a fiscal revolution and ably chronicled by the late Herbert Stein (Herbert Stein, The Fiscal Revolution in America, second revised edition, AEI Press, Washington, D.C., 1986).

In 2001 the negative pressures on the U.S. economy, not to mention the global economy, are serious enough to justify far more aggressive tax rate reductions that, in fact, target moderate budget deficits and an attendant moderate rise in the ratio of debt to GDP. Some movement in that direction will occur when the sharp slowdown in the U.S. economy over the coming months turns fiscal policy debate from a quarrel about whether tax cuts are too large into a contest between Republicans and Democrats to determine who can cut taxes by the larger amount.

Monetary policy is also disconcertingly complacent in view of the dangers facing the U.S. economy. Although reductions in interest rates cannot eliminate the recession, they can cushion it. Holding the Federal Funds rate at a still-restrictive 5 percent (even after a reduction of 0.5 percent on March 20) throughout the onset of recession when a stimulative 3 to 3.5 percent is needed will unnecessarily prolong economic weakness. In addition, Fed chairman Alan Greenspan’s advocacy of a destabilizing fiscal measure that raises tax rates in a recession—the debt trigger mechanism—only reinforces the misplaced leaning toward restrictive fiscal policy at a time when stimulative measures are needed. Both monetary and fiscal policy will have to be sharply reoriented toward stimulation of the economy in coming months. A failure to do so would only reinforce the uncanny tendency toward depression after equity market bubbles have burst.

John H. Makin is resident scholar at the American Enterprise Institute. #12776

http://www.aei.org/eo/eo12776.htm

-- goldfinger (goldfinger@smellthegold.finger), May 02, 2001.

The economic data I posted are facts, not theory. Makin has been worried about Fed strategy since at least 1998. (Glassman, 1998) His article was clearly written before the "surprise" FOMC 50 bp rate cut of April 18. (Did you realize this?) The federal funds target rate is 4.5 percent, not far from Makin's desired 3 to 3.5 percent. We may see another reduction to 4.25 or 4 percent depending on inflation data.

Please note that Makin's article does not predict a depression, or even a recession. He is simply building an argument for the Federal Reserve to more aggressively cut rate. Makin ignores the inflationary pressures of a rising energy costs and a tight labor market. Greenspan does not.

Makin also ignores the fact that equities prices have been relatively stable despite the tech stock shake out. The "bubble" has burst for individual companies, but not for the entire economy. He also demonstrates a fundamental misunderstanding of the collapse of companies like Yahoo. Much of the dot com "wealth" that disappeared was speculative "paper" profit. Makin completely ignores the wealth that has been created by the appreciation through the rest of the market.

The recent market correction was far less damaging than the October 1987 fall, and that correction did not lead to a "depression."

Makin wants a hard Fed cut, damn the torpedoes, full speed ahead. Personally, I think the safer route is to allow the economy to sort itself out and keep the risk of inflation moderate.

-- Remember (the@ld.forum.com), May 02, 2001.

Wow, Paula's busy as a bee now.

http://hv.greenspun.com/bboard/q-and-a-fetch-msg.tcl?msg_id=0058iT

Y2K, the Jo Anne Effect, and Year End Audits

greenspun.com : LUSENET : Grassroots Information Coordination Center (GICC) : One Thread

The following posts are from Cory H's List. They have also been cross-posted on TB2K (now under "new management") at http://pub65.ezboard.com/ftimebomb200017873frm1.showMessage?topicID=24 5.topic :

From Sent: Tuesday, May 01, 2001 2:46 PM Subject: [dc-y2k-WRP] Digest Number 1133

Message: 4 Date: Mon, 30 Apr 2001 23:58:28 EST From: Cory Hamasaki

Subject: Y2K, you decide.

Some of you may recall that I expected that large companies would lose sight of their bottom line, have problems with back-room batch systems, inventory, and such. I also expected that the problems would take 6 to 9 months to surface.

A couple pollies in c.s.y2k used to hoot at my theory that a large company could possibly forget and natter about it's revenues, "are we making money, I sure don't know, do you?"

Well, guess what. I was wrong. It didn't take 6 to 9 months. It turns out that it can take a year or longer. Here's the story from Reuters. I've clipped in the whole thing rather than just including the link because this is big breaking story and not a manifesto. Please keep using links for the various manifestos.

========= Start Clip === [Fair Use: Educational & Research Purposes]

Dollar General probing accounting irregularities (UPDATE: adds closing share price) By Anna Driver

CHICAGO, April 30 (Reuters) - Dollar General Corp. (NYSE G - news) on Monday said it is investigating accounting irregularities and possibly fraudulent behavior and will need to delay its fiscal first-quarter earnings report and restate prior results, which sent the discount retailer's shares down 31 percent.

Dollar General said it expects to restate financial statements for fiscal years 1998 and 1999 as well as unaudited financial data for the fiscal year 2000. The company has also postponed the publication of its annual report and its annual meeting.

Shares of Goodlettsville, Tennessee-based Dollar General ended off $7.38 at $16.50, a decline that shaved about $2.5 billion off its market capitalization. The stock was the second most actively traded on the New York Stock Exchange with volume of more than 19 million shares.

A company spokesman would not comment further on the investigation and said the company has not scheduled a conference call with investors and analysts. The lack of details from Dollar General contributed to the stock's weakness, analysts said.

``These things never have a good impact on the stock,'' said Mark Mandel, retail analyst with Robinson-Humphrey. ``How severe an impact it has depends on the nature and the severity of these issues, and most of us don't know what they are right now.''

Based on the company's preliminary investigation, management estimates a reduction in aggregate earnings of about 7 cents per share over the three-year period, from the previously reported three-year total of $1.81 per share.

One fund manager characterized the stock's decline as an overreaction.

``I think the punishment far exceeds the mistake,'' said Frederic Russell, chief executive and president of Frederic E. Russell Investment Management Co. ``Sure there may be other revelations that may not be savory or appealing, but I believe the chance of that is small.''

Russell, whose fund has a Dollar General stake valued at about $2.3 million, said he bought an additional 15,000 shares after news of the investigation was released.

Dollar General said the restatements are not expected to have a material effect on future earnings. It said it still backs its previous forecast for operating earnings per share of 71 to 73 cents for the current fiscal year. Analysts on average had expected a full-year 2000 profit of 73 cents a share, from a range of 70 to 75 cents a share, according to Thomson Financial/First Call.

The company's audit committee hired the law firm of Dechert Price & Rhoads to assist with its investigation and accounting firm Arthur Andersen LLP was retained as well, Dollar General said.

Dollar General and the audit committee are reviewing allegations of fraudulent behavior in connection with certain of the accounting irregularities and are reviewing the company's internal accounting controls and financial reporting processes.

Analysts speculated that the irregularity may have something to do with the way Dollar General accounts for its inventory.

``This action is unprecedented in the history of our company and is certainly regrettable,'' Cal Turner, Dollar General chairman and chief executive, said in a statement.

``I am confident that our investigation of these matters will result in a thorough review of our previously released financial statements for each period and will also establish the leadership and processes that will prevent these accounting irregularities from recurring,'' he said.

After the announcement, Moody's Investor Service said it may cut Dollar General's debt rating, affecting about $200 million in debt securities. S&P then said it may also cut the company's debt rating.

In February, Brian Burr, the company's chief financial officer, resigned and was replaced by parking industry executive James Hagan. At that time, the company described Burr as a ``management generalist'' who took on financial responsibilities.

Dollar General's annual meeting was originally scheduled for June 4, and its first-quarter earnings report was slated for May 14. Neither event has been rescheduled.

Dollar General operates more than 5,000 stores in 25 states.

============ End clip ==

This one is fascinating for several reasons. These problems happened so early that it could be a Jo Anne Effect. The JAE was the idea developed by Jo Anne Slaven, an accountant and not a programmer, who speculated that there would be accounting errors pre-Y2K as the code attempted to slot Fiscal Year 1998 or 1999 transactions by comparing the transaction date against the end bound of either the calender year or the fiscal year.

If you had an inventory transaction for March 1999, which might be Fiscal Year 1998 (it's just a name and not a real year), the code has to compare March 1999, 9903 against the end bounds, one of which might be January 1, 2000, 0001.

Is 9903 less than 0001? No, it's not. So that inventory transaction is "lost". The pollies didn't believe that this would happen, and if it did, they thought that these problems would be uncovered in a few hours.

Even if this isn't Y2K, tell me again why it happened and why it took so long to uncover.

Dang pollies. Some kind of obscure, can't possibly happen, accounting problem just shaved 2.5 billion dollars off the value of one company. Somewhere out there, there are a bunch of poor old geezers and geezettes who just dropped from the canned tuna to the canned cat-food diet.

Dang pollies. A few more companies have problems like this and pretty soon, we'll be talking some real market losses.

When only a few JAE's surfaced, the nasty stinging pollies called Jo Anne names. Little did any of us realize that it can take years for accounting discrepancies to surface.

Why am I going on about this? Isn't Y2K over? Didn't the market keep going up, up, up? Isn't gas $.879?

Lock down time, gang. Toss a twenty into a coffee can. Roll your change. When you have 50-60 bucks, slam that into a savings account. When you get up to a grand or so, buy a six month CD. Every now and then, take the 50-60 bucks and buy some silver rounds.

Make a nice meal of pasta and that beef with red wine and cilantro recipe, I make it a buck a person for a passing-out size serving. That'd be 6 oz of meat, carrots, and a heaping plate of pasta.

We're gonna get through this. No matter how it plays out, we'll do fine and will be in a stronger position.

Take care.

Cory Hamasaki

____________________________________________________________

Message: 7 Date: Tue, 1 May 2001 00:40:52 EDT From: vipper5555@aol.com Subject: Re: Y2K, you decide.

Cory,

Sounds like the same problem with the construction companies I told you about yesterday if ya ask me.... Nothing noticed until end of year audits.......

Kath ----------------------------------------------------------

End of quoted material from Cory H.'s list

-- Paula Gordon (pgordon@erols.com), May 01, 2001

Answers

Recently I received a computer-generated restaurant bill dated 1901. Wouldn't that mess-up their accounting system?

-- Rachel Gibson (rgibson@hotmail.com), May 01, 2001.

Personal local experience augments the Internet postings that accounting, bookkeeping, payroll, and electronic payments systems problems are worsening. It also shows the wisdom of the "mild case" Y2K preparation step of keeping all paperwork in good order.

Several friends I know are now in trouble, because they had extra money erroneously posted to their bank account, from electronic pay roll deposit, and they spent the money. Now the employer demands immediate repayment of the errors, and the bank is treating the erroneously spent money as overdrafting. Yes, the law is clear: You are supposed to know your checkbook balance, and if you spend money you know shouldn't be there, it is (at least constructive) fraud. Since the sum involved was large, beyond the ordinary math errors that cause most bounced cheques, the fraud is not merely constructive, but deemed actual. This constitutes a crime, as well as grounds for immediate employment termination, with prejudice. No Unemployment Compensation, no COBRA Health Insurance continuation, and possible civil liability to employer as well as possible criminal prosecution.) Any prospects for a replacement job are very grim indeed, especially since none of these people are white, healthy, and young, This reason for leaving is a "legitimate nondiscriminatory reason" for rejection, despite any actual discriminatory motive.

What a severe penalty for indiscriminate "debit card" use without keeping receipts! Welcome to the Dark Side Of The Moon of the Y2K Bug "Flood"!

-- Robert Riggs (rxr.999@worldnet.att.net), May 02, 2001.

________________

http://hv.greenspun.com/bboard/q-and-a-fetch-msg.tcl?msg_id=0058wd

Subject: The Institution of Electrical Engineers re Y2K: The Millennium Problem in Embedded Systems 4-2-2001 thru 2100

The following is dated 4-2-2001.

http://www.iee.org.uk/PAB/SCS/problemdates.htm

The Institution of Electrical Engineers

The Millennium Problem in Embedded Systems

Dates Potentially Causing Problems in Computer Systems (from today to 2100)

Published 2nd April 2001

2001/09/09:

(At 01:46:40 GMT) A UNIX date when the time_t value goes from 9 to 10 digits. Suspects are timestamps stored in fixed-column tables and internal variables.

2002/01/01:

(or any other date past this day) Processing errors may occur in backward calculations and processing of dates in the 1980s and 1990s at this point in time

2002/06/30:

Last day European national currencies are acceptable. 2002/07/01: First day of Euro-only transactions in the European Union (EMU).

2004/02/29:

Last day of February - a leap year.

2004/07/17-18:

GPS Receiver Almanac Rollover due to the use of an 8-bit field for weeks since 22 August 1999 (256 weeks).

2004 & 2005:

Children born in 2000 enter school system.

2005:

Reported that some very old versions of UNIX (e.g. 16-bit BSD) will die in 2005.

2009/01/01:

Satellite processing of distress signals from 121.5/243 MHz emergency beacons ends. 406 MHz will be used instead. 2009/09/09: Possible valid nonsense or marker date (same for any date where Y, M, and D are the same).

2010/01/01:

Overflow for ANSI C library.

2010/01/01: Sorting YYMMDD decade-reversed covers 1990-2009 only.

2017:

Children born in 2000 will be processed by university admission systems. If they are still in operation, systems may think they are dealing with 1900 or 2100.

2019/01/01:

Possible confusion may occur between YY and YYYY forms, over first two digits of the date.

2019/12/31:

YY date limit for Microsoft Excel 95. 2020/01/01: Mac (System 6.0.4+) Date and Time control will no longer be able to set the current date.

2025/12/31:

Dates will fail on versions of Intuit's QuickBooks for DOS.

2027/12/31:

Dates will fail on versions of Intuit's Quicken, QuickPay 3 for Windows, and QuickBooks for Windows and Mac.

2028/01/01:

Systems that used a 28 year setback to remedy Y2K will fail.

2030:

As with 1970, this has been reported as a breakpoint in the windowing system used by Microsoft in a large number of their products. In these systems 29 will imply 2029 and 30 will imply 1930.

2034/09/30:

Overflow for UNIX time function.

2035/12/31:

Microsoft's Year 2000 statement of compliance timeframe ends at 24:00.

2036/02/06:

(06:28:16 GMT) 2**32 secs from 1900/01/01 - 00:00:00 GMT. NTP timestamp overflows (2036/02/05 if 1900/02/29 is taken into account).

2037/01/01:

Rollover date for NTP systems.

2037/12/31: Year 2000 support for some editions of WS_FTP ends.

2038/01/19: (03:14:07 GMT) 2**31 seconds from 00:00:00 GMT, Thursday 1st January 1970 (UNIX's birthday). The seconds counter used for date/time information in UNIX and C and C++ will reach 2,147,483,647 - the largest number which can be stored as a 32-bit signed integer. As a result an overflow problem will occur (i.e. the value of the next number is unpredictable). Time differences mean it appears that it will happen earlier in America (22:14:07 US EST, Monday 18th January 2038). There will also be a an additional problem due to a discrepancy of a few seconds between system clocks and astronomical time because the system will not have taken account of leap second adjustments made in the interim period. This may be significant only for a few very specialised systems, but could give rise to difficulties if changes are based on algorithms which do not take this into account. It is understood that the Java programming language (which in many respects closely resembles C++) will not have this problem.

2041/01/01: IBM mainframe internal clocks will not go past this year (unconfirmed).

2041/11/16: (24:00:00) Clock in Unisys BTOS/CTOS Operating System will move on to 1952/03/01.

2042/09/18: (23:53:47 GMT approx) Overflow of TOD timer on IBM Systems 370 and 390.

2046/01/01:

Amiga system date failure.

2048/01/19:

2**31 seconds from 1980/01/01 - Stratus VOS OS failure.

2048/07/01:

64**2 weeks from 1970 - some UNIX password ageing fails.

2049/12/31:

Microsoft Project 95 (and earlier) limit.

2050/01/01:

YY-windowing into 1950-2049 collapses.

2060/01/01:

The trick of using a two-digit year representation with the first digit hex (98, 99, A0, A1 through to F9) fails today. If the digits are stored as nibbles, no more can be done; if as characters, 200 more years brings the end of Z9.

2068/01/01:

YYMMDD = 000101 again for SunSPARC: SunOS, Solaris, BSD/OS, Linux: in RTC.

2070/01/01:

Centenary of 1970/01/01 (base date for UNIX time_t). There is the possibility of Y2K style faults.

2071/05/10:

(11:56:53.684) AS/400 internal hardware clock rolls over to 1928/08/23.

2072:

(Exact date t.b.d.) Overflow of Milstar Operating System. 2078/12/31: Excel 7.0 - The Last Day, #65380; and Excel 95.

2079/06/06:

2**16 days from 1900/01/01.

2080/01/01:

MSDOS file dates become ambiguous when displayed with two digit years. Windows File Manager, set to ISO-8601 dates, drops 100 years from displayed file dates beyond 2080.

2100/01/01:

Y2.1K - most current PC BIOS run out of dates. MSDOS DIR renders filedate years 2100-2107 as 99. Many short-term Y2K fixes will fail.

2100/02/28:

Last Day of February - NOT a leap year. First failure of the "4-year" rule since 1900 [NB - every year divisible by four is a leap year unless it is divisible by 100, but not 400].

2101/03/01:

It is claimed that a system which is compliant up to this date will be totally and permanently date compliant. [Main 2000risk page]

Document last updated: 2001-04-02 Document valid until: 2002-04-02

Page created by phawes@iee.org.uk

End of exerpted webpage

-- Paula Gordon (pgordon@erols.com), May 02, 2001.

-- Buddy (buddydc@go.com), May 02, 2001.