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Strategies & Market Trends : MDA - Market Direction Analysis -- Ignore unavailable to you. Want to Upgrade?

To: Les H who wrote (29985)	10/16/1999 8:53:00 AM
From: Les H	Respond to of 99985

Y2K Liquidity Crunch for Financial Markets? GREENSPAN: BORROWERS, LENDERS BUILDING LIQUID ASSETS FOR Y2K marketnews.com By Steven K. Beckner Market News International - Federal Reserve Chairman Alan Greenspan said it is unsure whether the inventory effect of the Y2K computer rollover will be "insignificant" or "quite large" but said are clear signs borrowers and lenders are stockpiling "liquid assets." Greenspan, in remarks to the National Italian American Foundation meeting on Capitol Hill, said he and his fellow Fed officials are "optimistic" that the century date change will have no major impact on the U.S. economy, thanks to extensive preparations by the Fed, the banks and most companies. But he said there is a risk that the public could have a "disruptive" overreaction. A variety of Fed officials, including some quoted by Market News International earlier Friday, have said they do not detect any significant build-up of inventories that will swell fourth quarter GDP, then be followed by a GDP-dampening inventory liquidation in the first quarter. But Greenspan indicated he still has concerns about a potential inventory swing. Greenspan said companies are still "deciding whether, for example, to hold inventory levels above their tight, just-in-time programs as a precaution against Y2K-related disruptions." "If only a small percentage of businesses choose to add to their inventories as a hedge, the effect on production will be insignificant," Greenspan said. "However, 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." To the extent firms appreciate the nation's "general state of readiness" for Y2K, precautionary inventory building will be minimized, Greenspan said, because "the less uncertainty, the smaller the perceived insurance need." Greenspan was more certain about the financial impact of Y2K. "While the evidence of precautionary inventory hedging to date is mixed, in the financial sphere, borrowers and lenders are clearly taking steps to build liquid assets and reduce their reliance on credit markets around the end of the year," he said. "This is reflected in a noticeable rise in deposit and commercial paper rates for funding that would be outstanding over year's end," Greenspan continued. "Many corporate treasurers have moved forward their debt offerings to avoid any chance of a dearth of credit availability in the fourth quarter or difficulties funding short-term liabilities." But Greenspan said "the potentially most important piece in the Y2K puzzle for the rest of the year is the uncertain response of the American consumer as the year-end approaches." He said "a small number of households" are likely to "build large stockpiles of food, water, fuel and cash as the millennium approaches." Publicity surrounding preparations for Y2K has "raised the potential hazard of an outsized, if only partly informed, disruptive reaction by the public," Greenspan said. Most households are unlikely to overreact, Greenspan said. "Nonetheless, we at the Federal Reserve must be prepared for all contingencies and have made special plans for currency availability in the remote possibility of heavy withdrawals from banks," Greenspan said, adding, "I trust that such withdrawals will be modest." Reiterating what he and other Fed officials have said many times, Greenspan said "we at the Federal Reserve are optimistic that computer problems associated with the Century Date Change and the response to the CDC will not be a major event for our nation." Not only have the Fed and the banks it supervises made extensive preparations, said Greenspan, but so have most companies and government agencies. "While it is easy to obsess about the few institutions in our society that may not be ready, let us not lose sight of the fact that the overwhelming majority of us are not only prepared but have contingency plans to deal with breakdowns." "The probability of a cascading of computer failures in mission-critical systems is now negligible," Greenspan said.