March 28, 1998 in Nation/World

‘Millennium Bug’ Could Trigger Recession

Associated Press
 

Almost two years before the fabled “millennium bug” is due to strike the world’s computer systems, its story is already being derided by some on Wall Street as a tired old tale.

Observers in both the public and private sectors who are monitoring Year 2000 preparedness efforts have been issuing increasingly ominous warnings in recent days.

Whether investors like it or not, the subject seems certain to loom larger and larger as an economic and financial issue as the deadline draws closer week by week and month by month.

Last Wednesday, the General Accounting Office of Congress said government agencies were making only “uneven progress” toward fixing or replacing important computer systems as quickly as they must. “Some agencies are significantly behind schedule and are at high risk that they will not fix their systems in time,” said Gene Dodaro, the GAO’s assistant comptroller general.

Edward Yardeni, the Wall Street economist who has emerged since last year as a leading Y2K voice, said last week that he had raised his projected probability of a recession induced by the problem from 40 percent to 60 percent.

“I would love to be wrong on this issue,” Yardeni, of Deutsche Morgan Grenfell Inc., said in a report dated last Monday. “I am not predicting the end of life on planet earth.”

But he added, “let’s recognize that Y2K is an emergency situation that requires immediate attention and enormous resources.”

Even if most computers are ready on time for the changeover to a new century, analysts point out, a relatively small percentage that aren’t could easily disrupt communications, transportation and financial systems that make up the veins, arteries and nervous system of the world economy.

For investors, reliance on computer systems extends not only to electronic marketplaces and brokers’ or mutual fund managers’ World Wide Web sites, but also to the record keeping and security of their accounts at any financial institution.

Stock and bond certificates, and even savings passbooks, have become increasingly rare in the modern world, replaced by entries in computer systems.

“A recession,” says Yardeni, “could begin before Jan. 1, 2000, perhaps during the second half of 1999, if the public becomes alarmed and takes precautions. If stock prices fall sharply in 1999, in anticipation of a recession in 2000, the resulting loss of confidence could cause consumers to retrench.”

He also observes, “if information technology systems do fail, perhaps the resulting disruptions and adverse economic consequences will be minimized by contingency planning and preparations.”

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