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Summary and Comments

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Category: 

Banking

Date: 

1998-04-09 11:50:21

Subject: 

Yardeni's Speech to the BIS: Worldwide Crisis Looms

  Link:

http://www.webcom.com/~yardeni/public/y_19980407.pdf

Comment: 

Ed Yardeni is senior economist for Deutsche Morgan Grenfell. He delivered a speech to the Bank for International Settlements at its April 8 conference on the Year 2000 Problem. He painted a frightening picture. His words will alienate those who dismiss y2k as a minor event:

"It is the ground-zero of the potential Y2K explosion. We all need to know if the products, services, information, orders jobs, incomes, and payments we depend on have been doomed by the triage decisions of those who provide them. If so, we might already be toast in 2000 and not know it in 1998 or even in 1999."

Most mainframe programmers regard such language as offensive, uninformed, overly provocative, and downright clear. They disdain any attempt to look beyond their cubicles at the society around them and draw conclusions regarding y2k's effect on the modern division of labor -- catastrophic. Those few who do see what's obviously coming make plans to move. This, too, bothers some of those who stay behind (for the moment).

Unfortunately for the programmers' mild-mannered, Clark Kent-like attempts to gain widespread y2k awareness in a calm, scholarly, guarded, and thoroughly professional manner, programmers do not get invited to speak to the BIS -- not that they've ever heard of the BIS, one of the most important institutions on earth. (I would say that it's the most influential secular international body there is, and has been for the last seven decades. What the BIS says, goes -- all over the world.) Nobody pays much attention to programmers -- not four decades ago when they established the short-sighted, digit-saving standard that now threatens our very survival, and not today, when they plead with management, "Gee, fellas, you guys really ought to give us more money to fix this." The same programmrers who did not have the Moxie to tell senior management until 1995 or 1996 that their computer systems are going to fail now get upset that people such as Yardeni use scary rhetoric. It's just not dignified. It's doom and gloom. It's extremism. It's, it's . . . motivational! Their motto is simple: "You may legitimately whisper 'fire' in a crowded theater, but only when half the people are unconscious from smoke inhalation."

I wish the document were in HTML. It's in a pdf file. You must have an Acrobat reader to access it.

* * * * * * *

Let’s stop pretending that Y2K isn’t a major threat to our way of life. There is too much at stake for such uninformed wishful thinking. Perhaps, the time has come to act as though we are preparing for a war. This may seem extreme and unnecessary. However, if we prepare for plausible worst-case Y2K scenarios, then perhaps we can avoid at least some of them. . . .

Securing Infrastructure.

Y2K “Sector Alliances” should be responsible for the Y2K campaigns in specific global sectors. The top priority must be to secure the supply of electricity worldwide. Other utilities, including water, gas, sanitation, and telecommunications, must also be secured. Contingency plans for rationing utility usage should be prepared. Other key sectors that may require a global “top-down” approach include government revenue collection and debt servicing, welfare payments, farming, manufacturing, mining, transportation, distribution, retailing, banking, and finance. Y2K “Industry Alliances” should have the power to organize and execute a cooperative and collective battle plan among the world’s key industries, including, for example, food, drugs, chemicals, energy, security brokerage and exchanges. . . .

Mandatory Y2K Holiday

The Y2K Alliance should consider requiring all nonessential employees to stay home during the first week of January 2000. Financial markets might have to be closed during this period. This global Y2K holiday would give IT personnel the opportunity to stress test their systems with a slow “reboot,” rather than under peak load conditions. They could first test the integrity of basic utility services, especially electricity and telecommunications services. Then they could bring their own systems on-line in a phased sequence that can pinpoint weak links and either repair them quickly or take them immediately “off-line.”

Emergency Budget

The Year 2000 Alliance Accord should require all participants to fund a Y2K Emergency Budget with an initial minimum balance of $100 billion. They should be prepared to provide much more, if necessary. The budget should be spent on both last-ditch efforts to repair or replace key computer systems around the world and to implement contingency plans once the weakest links have been identified. Conceivably, the funds may be needed to purchase strategic stockpiles of fuel, food, and medical supplies. . . .

The Governor of the Bank of England, Eddie George, calls January 1, 2000 “a day of judgment” and believes that the British government should freeze legislative and regulatory changes that would burden the computers of financial institutions already struggling with Y2K and the euro. In Canada, Prime Minister Jean Chretien is sending letters to all ministers and deputy ministers warning them that Year 2000 is the No. 1 priority and all other business is secondary. . . .

The division of labor could be radically upset by Y2K. This process is the very foundation of economic prosperity and progress based on the exchange of goods and services produced as a result of our comparative advantage. We all either thrive, or have the potential to do so, by producing the goods and services that we are especially endowed, qualified, or trained to produce. We exchange the fruits of our labor for the goods and services that are better made by others. IT systems have expanded the size of the markets and the opportunities for an even greater division of labor. Just-in-time manufacturing, outsourcing, and globalization are the most obvious modern extensions of the division of labor. Now imagine a world in which those IT systems either are impaired or completely fail. Suddenly, we may all be forced to do without goods and services that can no longer be produced for us by others. We can attempt to make them ourselves, but in most cases this will be impossible. If it is possible, the cost and time of doing so will be enormous.

There are no low-tech alternatives if our high-tech information systems fail in 2000. We simply cannot manually collect, sort, store, process, and analyze all the data we must have to support, let alone grow, our global economy. . . .

Only six countries have national Y2K awareness campaigns. A recent World Bank survey found only 37 out of 128 borrowing member countries said they were aware of Y2K.

Link: 

http://www.webcom.com/~yardeni/public/y_19980407.pdf

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