Media Y2k frenzy may trash economy – Greenspan

It's all under control. But if nobody believes that - tick, tick, tick

Media exploitation of the Y2K rollover will determine its disruptive power upon the finely-tuned American economy, Federal Reserve Chairman Alan Greenspan told reporters last week. The Chairman reckons America's businesses and financial institutions are well enough prepared for the rollover, but "we have not yet reached the period of extra-heavy focus by the media," he observed, noting that it "is too compelling a story for audiences that thrive on countdowns to the unknown." The famously cryptic Greenspan spoke unequivocally on the need to debunk an inevitable onslaught of media pandering to Y2K paranoiacs: "As the tension heightens, and rumours inevitably mushroom, it is important [that] what is known and what is not known be clearly articulated by those of us in both public and private leadership positions in Y2K management," he declared. We haven't heard him talk this clearly in years. Greenspan likened corporate Y2K preparations to an insurance policy against uncertainty. The more uncertainty that develops, the more heavily businesses must draw against it. Thus, "accurate, credible, timely information on the general state of readiness will be essential...in the months ahead," he noted. A bit thick, perhaps, coming from a man who normally communicates in riddles, but true enough. Greenspan stayed neatly on message throughout his speech. One of his chief concerns is America's inventory pipeline, a delicate and immensely complex system in a country where 'just-in-time delivery' is a standard practice for cutting costs. American manufacturers, wholesalers and retailers generally carry no more than a few days' worth of inventory. Under that kind of pressure to perform and deliver, transportation, communications, and data storage infrastructures have got to operate flawlessly. If most companies believe themeslves to be prepared, few are showing equal confidence in their peers, and American inventories are expanding in anticipation of Y2K delivery problems. "The evidence of precautionary inventory hedging to date is mixed," Greenspan allowed, but he warned that holding "even a few extra days of inventories" could lead to a very large increase in stock orders, manufacturing production and imports. "Bottlenecks could develop, and market pressure could ensue," he concluded. Things look better in the financial sector. Borrowers and lenders are beginning to increase liquid assets and reduce their reliance on credit markets in Q4. "This is reflected in a noticable rise in deposit and commercial paper rates for funding that would be outstanding over the year's end," Greenspan said. "Many corporate treasurers have moved forward their debt offerings to avoid any chance of a dearth of credit availablity in the fourth quarter or of difficulties in funding short-term liabilities." But the "most important piece in the Y2K puzzle" will be consumer responses to Y2K terror, Greenspan reckons. To address the uncertainty, the Federal Reserve will increase the availability of currency towards year's end to cover excessive bank withdrawals. "I trust that such withdrawals will be modest, since, as I have said before, the safest thing for consumers to do with their money around year end is to leave it where it is," he chirped. "Those who cash out a significant part of their deposits only increase the risk that they will become victims of crime or fraud," he warned. And the risk that stock and bond markets will be ludicrously devalued by a sudden, hysterical sell-off, we can't help adding. ®