Greenspan Warns Of Y2K Fears

The possible economic consequences of Year 2000 computer bug fears are likely to replace technical worries in coming months, Federal Reserve Board Chairman Alan Greenspan said Friday.

In a speech before a White House Y2K summit, Greenspan said he's grown increasingly confident that efforts to prepare for the Y2K problem makes the odds of a widespread computer meltdown negligible.

That said, the Fed chief said he is worried that businesses and households may yet blow fears of Y2K problems out of proportion.

"While I have become increasingly persuaded that the technical breakdowns that might occur as a consequence of the (century date change) are readily containable, the response of businesses and households to unwarranted fears of serious disruptions does give me pause," Greenspan said.

The "economic effects" of their efforts to adjust to Y2K in comings could replace technical concerns as the Fed's "major challenge," he said.

Given the potential for panic, it's essential companies have accurate, credible and timely information on the state of Y2K readiness to help them prepare in months ahead, he said.

Many large businesses have completed or are nearly finished making Y2K adjustments, but are now assessing the readiness of their supplies and their local infrastructure. With that in mind, companies are determining whether to hold inventories above their tight, just-in-time levels as a precaution, Greenspan said.

If only a handful of businesses add to inventories, the effect on production will be insignificant, but if a large number decide to hold even a few extra days of inventories, the temporary increase in production or imports could be quite large, possibly contributing to bottlenecks and market pressure, Greenspan said.

The Fed chief noted, however, that increased media attention on the looming date change is yet to come.

"It is too compelling a story for audiences that thrive on countdowns to the unknown," Greenspan said. That makes it essential for public and private sector leaders to keep the public informed about Y2K, he said.

"If we avoid fear-induced significant economic responses in the months ahead, the (rollover to the Year 2000) will hopefully replicate the saga of 'the dog that did not bark,'" Greenspan said.

Written by William L. Watts