Date: Wed, 04 Nov 1998 13:18:00 -0500
From: Mike Pell 
Subject: 1/6 Y2K America

   Y2k = MARTIAL LAW?
   How Bad Is It?
   From The Website of Gary North
   Presidential Decision Directive 63

        "In the event of a Y2K-induced breakdown of community services
                that might call for martial law," will the military be
                ready? asked Sen. Robert Bennett, R-UT, chairman of the
                Senate Special Committee on the Year 2000 Technology
                Problem, of Deputy Defense Secretary John Hamre.

        His reply? "We've got fundamental issues to deal with that go
                beyond just the Year 2000 contingency planning. And-- I
                think you're right to bring that up."

        Later, Bennett added ominously: "The world as a whole is almost
                doomed to have major problems because other countries are
                way behind, however badly prepared we are" to handle the
                problem. "It is entirely possible that every organization
                in America could get its own computers fixed ... and
                still have major problems. When people say to me, is the
                world going to come to an end, I say I don't know. I
                don't know whether this will be a bump in the road ... or
                whether this will in fact trigger a major worldwide
                recession with absolutely devastating economic
                consequences in some parts of the world." . . .

        It is, no doubt, this kind of panicky and opportunistic thinking
                that led President Clinton to issue Presidential Decision
                Directive 63 -- one of the most ominous and least
                understood orders to emanate from a White House notorious
                for issuing such directives. It was released by the White
                House, like so many others, with little fanfare May 22.

        Single-spaced, "The Clinton Administration's Policy on Critical
                Infrastructure Protection," prints out to some 15 pages.
                While it never explicitly mentions the Y2K bug, one can't
                help thinking it was in the mind of the authors, who
                dwell heavily on the importance of "cyber-based
                information systems." . . .

   BLIND MAN'S BLUFF IN THE YEAR 2000
   By Gary North
   www.garynorth.com

        What are you going to be doing for a living in the year 2001?
                Unless you're a fix-it man living in a small town, you
                won't be doing what you do today. If you make your living
                in financial services, you will surely be doing something
                else. If you're a journalist, you will be in a new
                profession. But what? What other useful service can you
                provide? You have very little time to make the switch.

        Let me show you why.

        We live in a world that depends on a high division of labor. That
                world has less than three years to go. In one gigantic
                collapse, the division of labor will implode. This
                implosion will begin in 1999. It will accelerate in 2000
                and thereafter. Those who work in highly specialized
                fields will find little or no demand for their skills, in
                the face of an enormous supply of desperate, low-wage
                competition. Any job classification that did not exist in
                1945 will probably not have a lot of demand in 2001, with
                one exception: computer software programming.

        The June 2 issue of Newsweek ran a front-cover story on the
                looming computer crisis of the Year 2000 -- called y2k
                (Year 2 K -- shorthand for a thousand). In the week it
                the article appeared (late May), the Dow Jones Industrial
                Average set a record new high. (It was beaten a week
                later.) If investors believed the information reported in
                the Newsweek article, the world's stock markets would
                have collapsed. Clearly, people don't believe it. That's
                why a small handful of people can get out now -- out of
                the stock market, the bond market, and any city over
                25,000.

        Not everyone can get out at the top of a bull market. This
                includes the "bull market" known as modern industrial
                society. Pull the plug on the local power utility for 30
                days, and every city on earth becomes unlivable. What if
                the plug gets pulled for five years?

        How do you rebuild the shattered economy if the computers go
                down, taking public utilities with them? Without
                electricity, you can't run the computers. Without
                computers, you can't fix computers. How can you assemble
                teams of programmers to fix the mess? More to the point,
                how do you pay them if the banks are empty?

[continued...]

 | AmiQWK 2.9 - FREEWARE |
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                                   2/6

        Chase Manhattan Bank has 200 million lines of code to check and
                then repair. Citicorp has 400 million lines. All big
                banks are similarly afflicted. And even if this could be
                fixed, bank by bank, there is no universal repair
                standard. Thus, the computers, even if fixed (highly
                doubtful) will not work together after the individual
                repairs. A noncompliant bank's data will then make every
                compliant bank noncompliant. Thus, the world banking
                system will crash in 2000. When the public figures this
                out in 1999, the bank runs will begin.

        You probably will not have your present job in 2001.

   "It Just Can't Be True!"

        You don't believe me, of course. Not yet. But I havepublished the
                evidence on this Web site. You can verifywhat I'm saying.
                But you still won't believe it. Why not? Because it's too
                painful. In their book, The Sovereign Individual,
                Davidson and Rees-Mogg make a very important observation:

        A recent psychological study disguised as a public opinion poll
                showed that members of individual occupational groups
                were almost uniformly unwilling to accept any conclusion
                that implied a loss of income for them, no matter how
                airtight the logic supporting it. Given increased
                specialization, most of the interpretive information
                about most specialized occupational groups is designed to
                cater to the interests of the groups themselves. They
                have little interest in views that might be impolite,
                unprofitable, or politically incorrect (p. 339).

        My views are all three: impolite, unprofitable, and politically
                incorrect. Impolite, because I am saying this: (1) those
                advising you are as blind as an eighth-century Israelite
                king; (2) they have given you information that will prove
                to be wildly unprofitable; (3) all the hype about your
                getting rich -- the world's getting rich -- is a
                clap-trap. We are heading for a disaster greater than
                anything the world has experienced since the bubonic
                plague of the mid-14th century.

        Because the year 2000 begins on a Saturday, millions of victims
                will not be aware of their dilemma until the following
                Monday or Tuesday. They will pay no attention to advance
                warnings, such as this one, that they are at risk.

        As you read this report, I want you to think to yourself: "How
                will this affect me? Is my business at risk? Is my income
                at risk? What should I do?" I also want you to visit my
                Web site, http://www.garynorth.com and examine the
                accumulating evidence, week by week.

   The Origin of the Problem

        Here is the problem. Over three decades ago, computer programmers
                who wrote mainframe computer software saved disk space --
                in those days, very valuable space -- by designating year
                codes as two-digit entries: 67 instead of 1967, 78
                instead of 1978, etc. Back then, saving this seemingly
                minuscule amount of disk space seemed like an
                economically wise decision. This may prove to be the most
                expensive forecasting error since Noah's flood.

        What the programmers ignored for three decades is this: in the
                year 2000, the two digits will be 00. The computer will
                sit there, looking for a year. At midnight, January 1,
                2000, every mainframe computer using unrevised software
                dies. If old acquaintances are in the computer, they will
                indeed be forgot.

        Programmers who recognized the implications of this change did
                not care. They assumed that their software would be
                updated by year 2000. That assumption now threatens every
                piece of custom software sitting on every mainframe
                computer, unless the owner of the computer has had the
                code rewritten. In some cases, this involves coordinating
                half a billion million lines of code. (Example: AT&T) One
                error on one line can shut down the whole system, the way
                that America Online was shut down for a day in 1996
                because of a one-digit error.

        The handful of reporters who have investigated this problem have
                met a wall of indifference. "We're all using
                microcomputers now." "This is a problem only for a few
                companies that are still using mainframes." "Cheap
                solutions will appear as soon as there is demand." "The
                software will be updated soon, and I'll buy it then." "If
                this were a serious problem, we'd have heard about it."
                Yet this last response is given to someone -- a reporter
                -- who is trying to tell people about the problem.

[continued...]

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                                   3/6

        I first read about this problem years ago in a book by the
                pseudonymous author, Robert X. Cringely: Accidental
                Empires. It is not as though the computer industry has
                been unaware of it. Only a few weeks ago, I read a Wall
                Street Journal column on computers that mentioned it. The
                writer wrote that his editor is getting tired of having
                him mention it. This is typical. The general public
                hasn't heard about it, yet editors are already tired of
                hearing about it. "It's old news." Well, it's new news
                for most people.

        What does it matter, really? We use microcomputers. Microsoft has
                solved the Year 2000 problem, we assume. So have most
                software companies. Everyone uses desktop computers or,
                at the largest, minicomputers, right? Wrong.

   Governments Rely on Aging Mainframes and Software

        On September 24, 1996, Congressman Stephen Horn, who is Chairman
                of the Subcommittee on Government Management,
                Information, and Technology, submitted to the full
                committee a report on the Year 2000 problem. The
                Subcommittee held hearings on April 16. (Just one day of
                hearings. This indicates the degree of concern that the
                government has.) He said that these hearings revealed "a
                serious lack of awareness of the problem on the part of a
                great number of people in business and government. Even
                more alarming was the cost estimate reported to the
                Subcommittee to remedy the problem, which was said to be
                $30 billion for the Federal Government alone." Then he
                announced:

        Without greater urgency, those agencies risk being unable to
                provide services or perform functions that they are
                charged by law with performing. Senior agency management
                officials must take aggressive action if these problems
                are to be avoided.

        Yet despite Horn's valid warning, nothing visible is happening.
                He knows this. These agencies must shift hundreds of
                millions of dollars from their existing budgets to hire
                outside programmers to rewrite the code that runs these
                agencies. This isn't being done. More to the point, the
                longer they delay, the worse the problem gets. You can't
                just go out and hire programmers who are familiar with
                the code. As businesses find out what threatens them, the
                demand for these highly specialized services will soar.
                (If businessmen don't figure this out in time, payment
                will come due in January of 2000.)

        The Subcommittee's report warns: "This issue may cause banks,
                securities firms and insurance companies to ascertain
                whether the companies they finance or insure are year
                2000 compliant before making investment decisions." It
                also says that companies will start demanding contractual
                warranties guaranteeing against Year 2000 breakdowns.

        A memorandum from the Library of Congress Research Service (CRS)
                has warned that "it may be too late to correct all of the
                nation's systems." So, the question arises: Which systems
                will survive and which ones won't? Here are some problem
                areas, according to CRS:

        Miscalculation by the Social Security Administration of the ages
                of citizens, causing payments to be sent to people who
                are not eligible for benefits while ending or not
                beginning payments to those who are eligible;

        Miscalculation by the Internal Revenue Service of the standard
                deduction on income tax returns for persons over age 65,
                causing incorrect records of revenues and payments due;

        Malfunctioning of certain Defense Department weapon systems;

        Erroneous flight schedules generated by the Federal Aviation
                Administration's air traffic controllers;

        State and local computer systems becoming corrupted with false
                records, causing errors in income and property tax
                records, payroll, retirement systems, motor vehicle
                registrations, utilities regulations, and a breakdown of
                some public transportation systems.

        I don't think these are small issues. They will probably start
                receiving media attention when it is so late in the
                process that there will be massive foul-ups in
                coordinating the revisions.

        Notice, the biggest one is missing: an international bank run, as
                depositors demand cash. From that day on, all exchanges
                will be local: the collapse of the division of labor.

        When the computers' clocks think it's 1900, it soon will be.

[continued...]

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                                   4/6

        I realize that there has been tremendous progress in
                microcomputer power, but does anyone really think that
                all of the Federal government's forms -- not an infinite
                number, but approaching infinity as a limit -- can be put
                on three dozen Compaq desktop computers and run with,
                say, Lotus Approach or Microsoft Access? And even if they
                could, how would you re-train all of the bureaucrats to
                use the new systems? How fast will they learn? How fast
                do bureaucracies adapt? The Subcommittee's report warns:

        The clock is ticking and most Federal agencies have not
                inventoried their major systems in order to detect where
                the problem lies within and among each Federal
                department, field office and division. The date for
                completion of this project cannot slip.

        By "cannot," the Subcommittee's report-writer meant "must not."
                The date can surely be allowed to slip. It almost
                certainly will be allowed to slip.

        Additionally, the task may be more difficult for the public
                sector, where systems have been in use for decades, may
                lack software documentation and therefore increase the
                time it takes from the inventory phase to solution.

        Did you get that? The software code's records are gone! Remember
                also that we're not just talking about the United States
                government. We're talking about every government --
                national, state, and local -- anywhere on earth that has
                its data stored on an unrevised mainframe computer system
                or which relies on any third-party computer service that
                uses uncorrected software.

        As the year 2000 approaches, word will slowly begin to spread:
                "After the three-day weekend that will inaugurate the
                year 2000, there is going to be a hangover the likes of
                which we have never seen before." For some, it will be a
                time of celebration. For others, it will be the end of
                their dreams. It depends on whether they are being
                squeezed by the government or dependent on it.

        But it's not just government that is at risk. It's private
                industry.

   Kiss Medicare Goodbye

        Some 38 million people will receive Medicare payments in 1997. In
                2000, an estimated one billion claims will be filed,
                totalling over $288 billion. This, according to a May 16,
                1997 report of the General Accounting Office (GAO):
                "Medicare Transaction System."

        Problem: the Medicare system won't make it through 2000. The same
                GAO report shows why. Medicare claims are not actually
                administered by Medicare. It's administered by 70 private
                agencies. These agencies have been informed that their
                contracts will not be renewed in 2000.

        The agency that officially supervises Medicare has plans for one
                huge computer system that will bring the program
                in-house. It is the same dream that motivated the
                Internal Revenue Service for the past 11 years. The IRS
                announced earlier this year that after 11 years and $4
                billion, the attempt had failed.

        Medicare now knows that it has a problem with its computers. They
                are not Year 2000-compliant. So, to make sure that they
                will be compliant, Medicare has issued an appeal to the
                70 newly canned companies: please fix the year 2000
                problem for us before you leave. As the GAO report puts
                it, "contractors may not have a particularly high
                incentive to properly make these conversions. . . ."

        What if the system fails? (What if? Are they kidding? When!) The
                report says that the Health Care Financing Administration
                (HCFA), which is responsible for running Medicare, has
                not made contingency plans. "HCFA officials are relying
                on the contractors to identify and complete the necessary
                work in time to avoid problems. Yet the . . . .
                contractors not only have not developed contingency
                plans, they have said that they do not intend to do so
                because they believe that this is HCFA's responsibility."

   Kiss the IRS Goodbye

        The IRS has 100 million lines of code. Their code is not year
                2000-compliant. After the failure of the 11-year project
                to upgrade the system, Chief Information Officer Arthur
                Gross announced that getting the IRS year 2000- compliant
                is the "highest priority for the IRS." The IRS has nearly
                50,000 code applications to coordinate and correct. This
                task will require the IRS to move 300 full- time computer
                programmers to the new project. (Reported in "TechWeb,"
                April 21, 1997).

[continued...]

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                                   5/6

        For comparison purposes, consider the fact that the Social
                Security Administration began working on its year 2000
                repair in 1991. Social Security has 30 million lines of
                code. By June, 1996, the SSA's 400 programmers had fixed
                6 million lines.

        What if the IRS isn't technically equipped to pursue tax evaders
                after December 31, 1999? What if the IRS computer system
                isn't fully integrated with all of its branch offices?
                What if the system's massive quantities of forms are not
                stored in a computer system that is Year 2000-compliant?
                More to the point, what if 20% of America's taxpayers
                believe that the IRS can't get them if they fail to file
                a return?

        In 1999, the IRS may find a drop in compliance from self-employed
                people. If the IRS can't prosecute these people after
                1999, there will be a defection of compliance by the
                self-employed. When word spreads to the general public,
                there will be a hue and cry -- maybe at first against the
                evaders, but then against employers who are sending in
                employees' money when self-employed people are escaping.
                Meanwhile, cash-only, self-employed businesses will begin
                to lure business away from tax-compliant businesses by
                offering big discounts.

        This will start happening all over the world. Once it begins, it
                will not easily be reversed. The tax system rests on this
                faith: (1) the government will pay us what it owes us;
                (2) the government can get us if we stop paying. Both
                aspects of this faith will be called into question in the
                year 2000 if the governments' computers are not in
                compliance.

        Big Brother is no more powerful than his software. On January 1,
                2000, this strength may fall to zero. Actually, double
                zero.

        If the IRS cannot collect taxes, and if all the other mainframe
                computer-dependent tax collection agencies on earth do
                not fix this, what will happen to the government debt
                markets worldwide? To interest rates? To the
                government-guaranteed mortgage market?

        Kiss them all goodbye.

   "No Problem! Trust me!"

        There are a few conservative financial newsletter writers who
                have heard about y2k. They deny its economic relevance. A
                shut-down of all mainframe computers would mean that
                newsletter writers will be out of business after 1999 --
                a thought too terrifying for them. So, they brush y2k
                aside with some version of this rebuttal: "Of course, the
                government may not get its computers fixed." This is
                supposed to calm you. It should terrify you. Ask
                yourself:

        What happens to T-bills and T-bonds if the IRS computer breaks
                down and a tax revolt spreads because taxpayers know the
                IRS will never find them, and that if they pay their
                taxes, they won't get their refunds?

        What happens to money market funds and bond funds that invest
                heavily in government debt when investors realize that if
                the IRS can't collect taxes, the government will default
                on its debt?

        What happens to the banks when depositors figure out that the
                FDIC is bankrupt and that nobody insures their accounts
                any more?

        What happens to your job when the banks close because of bank
                runs, and no business can borrow money or even write a
                check to its employees?

        What happens to the delivery of food into cities when money fails
                because the banks are busted?

        What happens to the delivery of public utilities when money fails
                because the banks are busted?

        What happens to your retirement fund when ERISA, the government
                pension guarantee program, goes bankrupt?

        What happens to the 38 million people in the U.S. who are
                dependent on Medicare?

        What happens to 42 million people on Social Security?

        What happens to every state government?

        What happens to crime rates when the state cannot imprison
                violent criminals and may have to release those who are
                locked up because they can't be fed?

[continued...]

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                                   6/6

        What happens to the world economy when this scenario is
                multiplied across every government?

        Kiss you job goodbye. Especially if you're a journalist. I know.
                I am one. I figure I'll be out of work -- forced
                retirement -- January 1, 2000. I'm making plans to be in
                small-scale agriculture. I'm out of debt.

        What about you?

   Psychological Deferral

        Those in authority prefer to defer thinking about this. They are
                playing Scarlett O'Hara: "I'll think about it tomorrow,"
                followed by, "Well, fiddle dee-dee." Deferral is a normal
                response to distant problems. The question is: What can
                we afford to defer? People defer making this assessment.
                The fact that you have not read much about this looming
                problem doesn't mean that it isn't a problem. If your
                employer has not actively sought solutions to this
                problem, your firm had better not use mainframe computers
                or be dependent on suppliers that rely on mainframe
                computers.

        Everyone assumes that someone else is doing something to solve
                these problems. "It's being taken care of." The problem
                here is the passive voice. Who, exactly, is taking care
                of it? What, exactly, is this person doing? Is he on
                schedule? How do you know for sure? Are you taking his
                word for it? Anyone who takes the word of a computer
                programmer that he is on schedule is a person of very
                great faith. If the programmer says "Sorry, I didn't make
                it" on December 31, 1999, you're dead in the water.
                Meanwhile, he moves on.

   What You Should Do, Beginning Today

        First, you investigate whether what I'm saying is true.

        Second, think through what happens to you if the local power
                company and the local water and sewage company shut down
                in your city for six months. "Who ya gonna call?"
                Especially if your phone is dead? And if you do get
                through, how ya gonna pay if your local bank is defunct?

        Third, here is my personal strategy. I have adopted a question:

        "Can I prove on paper that he owes it to me?"

        I want hard copy print-outs of everything I do with the
                government. If you are owed money from Social Security,
                and you're dependent on this income, contact the Social
                Security Administration every year and get a letter
                telling you what you're owed. This is true of every
                government pension system.

        Do you have a copy of your birth certificate? If not, write to
                your place of birth and get it. Even if that community
                has not computerized the records, do it now. Even if it
                keeps the records in a desktop, do it. If word starts to
                spread, they may be buried in requests in 1999. You want
                your paperwork completed before word gets out.

        Do you have a copy of your college transcripts? If not, get it.
                The same goes for your work record history. Assume that
                your records are in some company's mainframe computer.
                Assume also that the company has failed to update the
                software.

        Do you have a print-out of all of your insurance records? Would
                they stand up in court? If not, get what you need, now.

        Have you spoken with your local insurance agent? Is he fully
                aware of the problem? Ask him straight out if he has
                scheduled an update of his software if he relies on
                vendor-supplied software. He deserves to know what is
                coming. So do you. (If you want to photocopy this issue
                to send him, go ahead.)

        Think through this problem in advance, before it gets out and
                creates a banking panic, all over the world. This story
                will get out eventually. In 1999, when reporters are
                running around looking for sensational Year 2000-third
                millennium stories, this one will at last surface. It
                already has: in Newsweek. At that point, every government
                bureaucrat whose agency is at risk will start playing the
                "No problem" game. "It's being taken care of." The
                bureaucrat's number-one rule is to evade responsibility.
                No one with any authority is going to admit that his
                malfeasance in office is going to create a disaster on
                Jan. 1, 2000. The basic response will be this: "There's
                no problem here, and furthermore, I'm not responsible
                when everything collapses next year!"

        Keep visiting my Web site for updated information:
        http://www.garynorth.com
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 | AmiQWK 2.9 - FREEWARE |
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