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Greenspan Allays Y2K Fears

The economy is prepared for Y2K, Federal Reserve Chairman Alan Greenspan said.

The American economy is well-prepared to weather the change of the century as long as consumers aren't frightened by rumors, Greenspan said in remarks delivered to the National Italian American Federation on Friday.

In the speech, Greenspan refrained from any mention of monetary policy, interest rates, inflation or the stock market. His Thursday speech on the risks of an overvalued stock market sent global markets into spasms.

"The probability of a cascading of computer failures in mission-critical systems is now negligible," he said. With the technical challenges of Y2K nearly solved, the biggest uncertainties are how businesses and individuals will respond economically to the century's change.

Greenspan said most large businesses and institutions have prepared themselves for the possibility that some computer programs will stop working or work unpredictably on Jan. 1, 2000, because they were designed to read the year in just two digits instead of four. Most affected systems have now either been fixed or bypassed.

"The potentially most important piece in the Y2K puzzle for the rest of the year is the uncertain response of the American consumer," he said. Some people are telling pollsters they plan to horde food, water, money and other essentials. The numbers of Y2K horders could increase as media attention is focused on the turn of the century.

"The safest thing for consumers to do with their money around year-end is to leave it where it is," Greenspan said. Nevertheless, the Fed has flooded banks around the nation with extra cash in case consumers withdraw cash as insurance.

For businesses, the main unknown is the level of inventories they'll want to hold at year end. "Should a large number of companies want to hold even a few extra days of inventories, the necessary, albeit temporary, increase in production (or imports) to accommodate such stock building could be quite large," he said.

Inventories rose 0.3 percent in August, the Commerce Department said, but levels remain very low by historic standards. Economists are expecting a boost in production and imports to build inventories.

Thirty-eight percent of manufacturing companies surveyed told the National Association of Purchasing Management last month they plan to build up their inventories at the end of the year in case their supply lines are squeezed by the Y2K bug.

Written By Rex Nutting

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