Y2K Doomsday Scenario

As we have stated many times,we don't believe anyone understands for sure what will occur in January 2000 as a result of the Y2K problem. Many experts believe most companies and other organizations will be close to full compliance in solving their Y2K problems, others believe it may lead to total collapse.

In the interest of providing a total and complete picture of the opinions and scenarios surrounding the Y2K problem, below is an interview with Gary North. He is perhaps the most prolific doomsayer on the Y2K subject. As you will see in the interview, he certainly wouldn't be surprised if civilization as we know it collapses because of Y2K. We don't necessarily endorse his view. However, Gary is an extremely bright man who is certainly doing his research. If nothing else, Gary's scream of impending doom has certainly woken us up to the fact that serious problems could exist.

As a result we are certainly going to have paper confirmation of all our assets. And we will probably have extra food and dry goods at our residence as a kind of insure policy should even 1/10 of Gary's doom and gloom prophecy come to fruition.

A Y2K INTERVIEW WITH GARY NORTH

Q. Why don't you grant interviews on Y2K? A. Because of the fundamental law of economics: "At zero price, there is more demand than supply." Since I don't sell interviews, I must ration them, for demand for them is already skyrocketing, and will escalate until December 31. I have decided to ration them by refusing to grant them.

Q. What are your credentials for being an expert on Y2K? A. 4,000+ hours of research.

Q. What else? A. I received a bachelor's degree in collapsing civilizations, an M.A. in the history of urban food riots, and a Ph.D. in early 18th-century famines.

Q. You did? Really? A. No.

Q. I don't understand. A. There are no credentials in Y2K. Nothing like this has ever happened before: a predictable disaster that hits the entire industrial world in a one-day spin of the earth.

Q. Do you have any credentials? A. I received a Ph.D. in history from the University of California, Riverside, in the summer of 1972. I wrote my dissertation on "The Concept of Property in Puritan New England, 1630-1720." It wasn't as interesting as it sounds. In have written about 42 books, depending on what constitutes a book, but not one on Y2K.

Q: When did you first realize that there is a Year 2000 computer problem? A. Intellectually, in February of 1992, when I read "Robert X. Cringely's" Accidental Empires. He said IBM would go bankrupt in 2000, beginning with the failure of IBM mainframe computers on Jan. 1. But I did not emotionally grasp what this would do to society until the summer of 1996.

Q: What convinced you? A. I was talking to my friend, Arkansas Bill (who went to the same high school four years behind the more famous one: the drum major). In the early 1970's, Bill was a mainframe programmer. He is now the most successful small business marketing man I know. The topic of Y2K came up. I asked him what he thought. "I know this much: Medicaid will go down on January 1, 2000. I was on the team that did the programming. There is no way that the code can be fixed in time." I spent the day talking to him about the details of Y2K. Without his guidance, I would not have gotten into this strange cottage industry as the chief compiler of Y2K documentation.

Q. How long did it take you to figure out what will happen if programs like Medicaid do go down? A. That day. It came like a flash. The division of labor will collapse.

Q. Why do you think that? A. Because I have read Chapter 1 of Adam Smith's Wealth of Nations. That's the most famous chapter in the history of economic thought: the story of the craftsman pin-maker vs. the team of unskilled pin-makers who use machines and stages of production. The craftsman produces a dozen pins a day; the team produces thousands. But the modern division of labor is interdependent: gigantic, innumerable rows of dominoes. Take away electricity or the phone system or the banks, and most of the dominoes will topple. General Motors has 100,000 suppliers. Unilever has 80,000. If 5% of the key ones fail because of Y2K -- maybe as few as 500 for GM -- a large manufacturing company will go bankrupt. It will then pull down most of its other suppliers with it. Down go the dominoes . . . in a world of just-in-time production and historically low inventories. This society has almost no reserves. Wal-Mart is the model: a dozen units each of 50 thousand products. Shelves must be re-stocked daily. Wal-Mart's warehouses are 18-wheelers. Y2K is a worldwide broken crankshaft.

Q. Have you applied this analysis to every product and service being sold today? A. Yes, in my site's category, Domino Effect.

Q. You're saying that all production will stop? A. Close enough to "all" to threaten your life and the lives of a billion or more people.

Q. A billion people? A. If the power grid goes down for over 60 consecutive days, yes.

Q. Does anyone else agree with you that Y2K's effects could be this bad? A. Joe Boivin, the man who until 1997 ran the Y2K repair project for the Canadian Imperial Bank of Commerce. But he worries mainly about the Third World. I worry about the industrial world. If we're both right, two billion people could die.

Q. How could that be? A. Simple. Think of a dead national power grid. It's winter in the northern hemisphere, where most of the world's production takes place. All heat ceases for high-rise apartments and offices. Their water pipes freeze and crack, ready for a thaw. All municipal water/sewer systems cease functioning as soon as they run out of back-up diesel fuel. The fire department can't put out fires without water. The public can't bathe or get safe drinking water out of the tap. There are no flush toilets. The ground outside is frozen solid. Diseases begin to spread through the cities; these will become epidemics when things begin to thaw.

The banks are down, so no one gets a paycheck. The police then quit to stay home and protect their families. Looting begins. The stores are stripped by panic buying or thieves in just one day.

Gasoline can't be pumped: no electricity. No privately owned trucks come in re-stock the shelves: no means of payment. The military seals off all main highways out of the cities, to keep the roads open to get emergency supplies in and get the trucks back out, so they can make return trips. City dwellers are now locked in: martial law. Meanwhile, almost all railroad traffic has ceased, meaning no grain is shipped from the farms to the cities. The military can barely feed itself. Food riots start before the end of the first 30 days of the power failure. Famine appears before 60 days are over.

And that's just in the United States. Think of Japan -- no oil, not much food, and a third of the population concentrated within a two-hour electric train ride to Tokyo. If you want a quick outline, read "The Death of New York City" in Roberto Vacca's book, The Coming Dark Age (Doubleday, 1973). If you want the overall picture, read P. A. Sorokin's Man and Society in Calamity (1942).

Q. Why do you think the grid will go down? A. Why do you think the grid won't go down?

Q. I asked first. A. First, there is no Y2K compliant power generation plant on earth. There is therefore no evidence that any plant can be made compliant. These plants are loaded with embedded systems, meaning pre-programmed chips. The power companies haven't fixed their software yet, let alone located and replaced all their defective chips.

Second, the power plants rely on the telephone systems to gauge their timing systems, called SCADA -- supervisory control and data acquisition. No telephone company is compliant. If the phones go down, the power companies can't tell how much power is being pushed into the lines per unit of time. They will fry their lines. How will they re-build the nation's fried power lines without power? So, they will have to shut off power -- fast -- if the phone lines go down. Third, the grid is a system. If too many local producers shut down at the same time and begin draining the survivors, the grid will overload, taking down all the regions. Once down, where will it get the power to re-boot itself? If it can't, then society will collapse within weeks. The capital and infrastructure will not be there to re-boot the grid for years, possibly decades. Never forget: "It takes electricity to generate electricity." On this slender thread, Western civilization now hangs.

Q. Do the experts think the grid will fail? A. The experts paint verbal smiley-face pictures, but when pressed, they reply, "We just don't know yet." That's what the Electric Power Research Institute's representative told Business Week (March 3, 1998). That's what the tiny, industry-owned North American Electric Reliability Council has told the press. That's their way of saying, "We just don't know if Western civilization will still exist in 2001."

Q. But what if the plants do somehow get compliant? A. Right: the Deus ex machina. OK, let's have a go at this, domino by domino.

Over 40% of U.S. plants are run by coal. Coal is shipped by train. The average large city's electrical power plants require three one-mile-long train loads of coal each day. But no railroad is compliant. Their switches are now run by mainframe computers. They fired the staffs that ran the old switching towers years ago. They tore down the towers. Also, a power failure in one region can shut down all rail traffic through that region. No coal = no power. The railroads can take down 40% of the country's power. That would destroy the grid.

Next, the banks. There is no compliant bank. The largest banks must be compliant if the entire system is to be saved. But not one major money center bank is compliant, and the Japanese banks -- the Godzillas of international finance -- are basket cases already. Their managers are not spending enough money to make them Y2K compliant. International bank runs will begin before 1999 is over. When the surviving banks (if any) close in 2000 because of bad computers, the means of payment will collapse. There will be no electronic money.

Companies that produce spare parts and other services for power plants will then go bankrupt. The average power plant has 5,000 separate suppliers of goods and services. You should contact your local plant for specifics. Without electronic money -- checks -- how will a power plant keep running? Where will it buy its spare parts? How will it pay its employees? Without pay, the employees will stay home to protect their families. Even with the offer of pay, they probably will. Nobody will be sending his kids off to school if food is scarce, riots are starting, and teachers have quit because the banks are closed. All over the world, people who aren't being paid will quit going to work. The division of labor will begin to collapse. When the electricity goes off, the collapse will be total.

Q. But what if you're wrong about the power grid? A. What if I'm right?

Q. Are you predicting the end of civilization? A. If the power grids around the Western world go down for over 60 consecutive days, yes. This would destroy the financial base (banking, capital markets, government bonds), starve out the cities, freeze out a lot of them in a bad winter, and destroy men's confidence in technology. Also, it is likely that a 60-day shutdown would bankrupt so many industries that supply the power industry that the power grid might not be able to be maintained after 60 days, especially if the failure of SCADA systems led to physical destruction of lines and transformers. Never forget: it takes electricity to generate electricity.

Q. Are you predicting that it will shut down this long? A. I am personally planning for it. I have allocated my investments accordingly. But I am not saying that the power grid must go down. I am saying that, based on the evidence presently available to the public, I see no good reason why it won't. I have waited for two years for anyone to respond publicly to my concerns -- the domino effect on power generation -- and no one has.

Q. How confident are you that there will be an economic depression? A. 4,000 hours of research worth.

Q. What about your friend, the programmer? A. He moved to the same region where I moved. He moved here first. He is digging in, just as I am. I have seen him pull in $50,000 in three weeks with one ad on the Web, and all he talks about these days is his two dozen chickens and all the eggs they lay.

Q. Where do you live? A. Northwest Arkansas.

Q. What is the appeal of the region? A. The weather won't kill you. It's two hours and an easily blocked highway from the nearest large city: Tulsa. And you can still buy properties with natural gas wells. I did. I can generate my own electricity indefinitely.

Q. Is it the safest place in the country? A. No. Other good places are eastern Kentucky, which has no large cities nearby, the Bluefield region of West Virginia, which gets cold, and northern Minnesota, which is so cold that nobody wants to live there, including my wife. The main problems with eastern Kentucky are the flash flood-prone valleys and the high number of people getting government checks. That's why I like Northwest Arkansas. Wages are low here, but there is low unemployment. People here are willing to work. And there is very low rates of violent crime.

Q. Is the absence of violent crime high on your list of priorities? A. It's at the top.

Q. What are the others? A. Independent sources of water, low population density, low incomes, regional agriculture (especially truck farming), grass-fed beef operations, and other low-capital industries.

Q. Why would you want a low-income area? A. The bigger they are, the harder they fall. Low incomes mean a low division of labor -- less of a collapse.

Q. Anything else? A. For me, yes. I wanted access to a conservative Presbyterian church and a large university library.

Q. Northwest Arkansas has a large library? A. Yes: the University of Arkansas.

Q. Where is the largest library in the U.S. with the lowest population density? A. Halfway between Pullman, Washington, and Moscow, Idaho: Washington State University and the University of Idaho. Each has 1.5 million volumes. If you had to, you could walk to either library, but it would be a long day's walk. In my view, this is the best Y2K survival location in North America, if you have a water well less than 300 feet deep. But the weather is milder forty minutes south: the Snake River area around Clarkston, Washington. There, it's fewer books, but warmer winters. Take your pick. One more thing: you are very far way from the state capital on the Washington side of the border; you're very close in Idaho. I'd pick Washington. Also, Washington has no state income tax -- not that Idaho's will be collectible (or any other government's) when the banks go down.

Q. Are you saying that the U.S. government will go bankrupt in 2000? A. Yes.

Q. Why? A. Because the banking system will shut down. Without checks, governments cannot collect taxes. Without the banks, governments above the county level will not be able to pay their employees or send out welfare checks. The welfare state has less than a year to go.

Q. Can't the government just print up currency? A. How would it get this cash to the users? By the Postal Service? Would you want to be a mailman if you had to carry your share of the U.S. budget in cash every day? They would be walking targets. Also, how could anyone prove that he had not received his money? How could anyone prove he had paid his bills by mail?

Q. But the government can print money. A. Not enough to replace all electronic forms of money, which total almost $6 trillion. Not on intaglio presses using the special paper supplied by the Crane Company, the oldest monopoly in the U.S. Also, not if electricity goes off. The debt/credit structure is based on today's prices, which are based on electronic money, not currency. The entire debt structure would collapse, including pensions, insurance, and mortgages. Besides, the U.S. Mint is not compliant. The I.R.S. is not compliant. The U.S. Postal Service is not compliant. Nothing is compliant. The U.S. government will not be able to collect taxes or send out welfare checks in 2000. At best, it will print up cheap-o paper currency for the army to spend into circulation and dole out to those who obey. That means martial law, for which the U.S. government has detailed plans, some of them public. See my site's category, Martial Law.

Q. But why must the banking system fail? A. First, a run on the banks, leading to a law limiting withdrawals, which will induce fear regarding the banking system. Second, the public's frenzied attempt to get out of electronic money and into real goods in preparation for Y2K, leading to massive increases in interest rates and wild inflation in the survival goods markets. Third, the public's loss of faith in saving: reduced supplies of loanable funds. Fourth, a literal shutdown of bank computers: dead on arrival. "Our computer is down." This would shut down all commerce and destroy the banks. Fifth, the exchange of information through computers. If computer A is compliant -- and today, none is -- it will be reinfected when it imports data sent by noncompliant computer B. The only way to avoid this is to screen out data from all noncompliant sources. First, this is probably not possible. Second, if it can be done, then the system becomes crippled. All that information must be typed in by hand. That would strangle banking operations.

Q. Why can't they just go back to paper and ink? A. Because everything today is based on just-in-time delivery and payment. You can't go back to 1964 methods overnight next December in any large industry without bankrupting its participants, but surely not in banking, where transaction costs have been reduced to a fraction of what they used to be, and both speed and accuracy are crucial. The number of transactions is huge today: trillions of dollars per day in just the international currency markets.

Computers have made this huge volume possible. We can't get rid of computers without creating havoc in our accounting and production techniques. There is no proof that banks can get back to manual systems, and I know of no bank where money is being spent to re- structure operations and re-train people to use paper-and- ink methods. But it's a good question for a reporter to ask local and regional bankers. "May I see your personnel training manual on returning to manual operations?" I suggest that no such manual exists for any company in any industry. But without one, no industry can go back to manual operations in 2000 without suffering enormous losses and probably a breakdown.

Q. Do you think everyone should flee the cities? A. No. Only those who take my warning seriously.

Q. But everyone can't flee the cities. A. Quite true. The collapse of a civilization is rarely democratic.

Q. Are you saying that everyone who stays in a city is going to die? A. That depends on the power grid, the water/sewer utilities, the railroads, and the telephone systems that allow these industries to coordinate their operations. All are at risk today. None has a compliant company. But I do say this: nobody who stays in a city will preserve the bulk of his capital unless he completely re-structures his investment portfolio to escape electronic promises to pay, and unless he finds a way to protect his home from vandals and his home's equity from the failure of the mortgage markets.

Q. Why is it so dangerous in cities? A. It is in cities where the division of labor is most extensive. Residents' lives depend on this division of labor. Consider a high-rise apartment building. Think of all the electrically controlled systems that must function to keep that building occupiable. Think of what it takes to re-stock the shelves of a supermarket or Wal-Mart. All of this infrastructure is computer-dependent. Think of how people earn their livings. It all depends on computers.

Q. Which industries will be hardest hit? A. Those that sell goods and services that people really can do without in a crisis. Newspapers, for example.

Q. Why newspapers? A. First, when the depression hits -- if we are lucky enough to get only a depression -- companies will slash their advertising budgets. Newspapers will get hit hard. Publishers will order editors to fire reporters by the carloads. Editors will substitute news wire stories and PR handouts from the Internet.

Second, affluent subscribers will cancel. They can spend $20 a month and get access to the major newspapers of the world, searchable, with all stories storable on hard disk in a data base. I quit subscribing to the NEW YORK TIMES the day I could get it for free on-line. I subscribe to no newspaper today, and I cancelled most of the magazines. The Web saves me thousands of dollars a year. Who really needs a local newspaper? No one. It's a convenience, not a necessity.

Third, newsprint will get very scarce in 2000. The paper mills are all heavily computerized, and not one of them is Y2K-compliant. Because the EPA threatens plant managers with criminal sanctions for pollution spills, the computers shut down the plants automatically when any glitch occurs. The glitches will be everywhere on Jan. 1, 2000. Paper will be at a premium. I think it will become unavailable, which is why I recommend hoarding three year's supply of toilet paper. I buy it in 60-roll cases at Sam's Club. (If you're looking for a barter item, this is it.)

I'll put it bluntly: when it's a question of buying the last roll of toilet paper or buying a newspaper, the newspaper salesman will lose the sale.

Q. So, are you saying that reporters will be out of work in 2000? A. And 2001, and 2002, etc.

Q. Why? A. Because, in a lower division of labor society, reporters will pretty close to useless, so society will need only a handful of them, and only low-paid ones. Consider the typical reporter from the point of view of the publisher. First, 99% of them are seen as interchangeable with 200 others just like them, who are willing to work cheaper. Colleges produce them by the thousands annually, and most of them can't get decent jobs now, let alone next year. As they said of second lieutenants in World War II, they are as expendable as tent pegs. So, they can be fired at a moment's notice and replaced with unmarried, low-wage newcomers. Thinks the publisher: "Readers can't tell the difference. No one will cancel a newspaper subscription because some reporter got fired." A reporter is not Dave Barry.

Q. So, you're saying that I'll lose my job in 2000? A. At least.

Q. What does that mean? A. You'll lose your job, your career, your pension, and everything that depends on them. You also live in a city. You aren't preparing for Y2K. You won't begin until everyone else is in well into Y2K panic mode, because, as a reporter, you pride yourself on your calm objectivity. Your calm objectivity guarantees that you'll get into the panic quest for survival products very late, when prices are high and supplies are minimal. You're therefore in worse shape than almost anyone else I can think of. You're a dead man typing -- figuratively, and maybe literally.

Q. Why do you think your writing career will survive? A. I don't. I saw that five minutes after Bill told me about Medicaid and mainframe computers. My career as a Y2K alarmist could begin only when I acknowledged to myself that I could not continue earning my living with a word processor after late 1999. The main difference between you and me is this: (1) I saw that my career was doomed in 1996; (2) I have spent 50 hours a week since them gathering the evidence that proves it. I have an insurmountable head start on you. My family may actually survive.

Q. You don't think reporters are really looking for the truth about Y2K. A. Correct.

Q. Meaning your truth? A. No, meaning your truth.

Q. What is my Y2K truth? A. The one that you would never hand to your editor.

Q. Which is? A. The story of the lack of compliance of your employer, your employer's suppliers, and, above all, your employer's bank. Your editor would not publish it. Anyway, you don't really want to find out. You don't want to think about what it means for your career. You are in Y2K denial. So, if you don't care enough about Y2K to find out how it will affect you, I assume that you aren't interested in the truth about Y2K.

Q. Anything else? A. Yes: trains. If the railroads shut down, the cities will be starved out or frozen out. Yet reporters do not pursue this story. They do not find out if the railroads that supply food and coal to their cities are compliant. What about railroad switching systems? Are they computerized? Are they compliant? If not, can they be operated manually throughout the company's entire system (not just locally)? What about the software that locates the position and destination of freight cars? If these systems are not compliant, the industry will go blind next year. There is no Y2K-compliant industry-wide system that tracks a specific car as it moves from company to company along its route.

Will all of the industry's computerized car-tracking systems be both compliant and integrated with the other companies' systems? They aren't right now. If they don't get compliant, the industry will shut down. So would the chemical industry. So would America's farms. But I know of no reporter who has ever bothered to do a story on the U.S. railroads' compliance problems.

Q. What have you done to help reporters write such a story? A. Find out. press SEND, wait 30 seconds, check your mailbox, and print out the report. Then you will do what every other reporter has done out of the hundreds who have downloaded it over the last year. Nothing.

Q. But don't reporters get the story out on Y2K? A. They get bits and pieces out, but never the whole story. They get their version out, which is governed by the premise that things won't get so bad that reporters will lose their jobs. This means that they do not get out the Y2K story. They get out the story that newspaper advertisers want to read, namely, "it's not too big a threat, and only kooks think it is" -- which is why you contacted me.

I say the entire civilization is at high risk, and the economy will surely crash. Advertisers, politicians, bureaucrats, PR flaks, and paper-pushers everywhere don't want to hear this, because it would mean that the days of wine and roses have less than a year to go. They much prefer to smirk than to take defensive action. "My, oh, my: what some people will believe!" Most editors want a Y2K survivalist kooking story. Well, I'm the Paul Prudhomme of Y2K survivalist kooking.

Q. So, you don't think I can be neutral. A. Over three decades ago, I studied apologetics with the Calvinist philosopher, Cornelius Van Til. I don't think anyone can be neutral. A person may be uninterested in something, but he can't be neutral about it. He makes assumptions about God, man, law, cause and effect, and the future. These assumptions will affect his interpretation of the facts.

Q. So, you don't think I will interpret the facts correctly. A. Not until you quit your job, cash in your pension, move to a safer place, and buy a year's supply of food.

Q. Is that why you refused to do a live interview with me? A. I don't have time to grant interviews to every reporter. I am besieged with requests for interviews. So, I made a decision: don't grant interviews to any of them. Don't play favorites.

Q. Don't you think reporters can help people deal with Y2K? A. On the contrary, reporters are being paid to keep people from dealing effectively with Y2K. A wise Y2K strategy begins with a decision to stop buying 99% of the items advertised in the media that pay the reporters' salaries.

Q. So, you think there is a bias against accurate reporting of Y2K. A. If a reporter is unwilling to face the reality of his own employment condition, he is unwilling to deal with Y2K accurately. He has an emotional bloc against admitting the threat. Test this theory. Visit my site. Read the documents in the category, Power Grid. Next, open a new file in your word processor. Call it "power grid." Divide the document into two headings: first 30 days; second 30 days. Fill up each heading with a list of things that will probably happen if the power goes off. Somewhere in the second list, if not the first, you will have to write: "My editor says I'm fired." Then write your Y2K story. See if your editor accepts it.

Q. Why haven't you written a Y2K book? A. I am too busy preparing for Y2K personally and spending 50 hours a week researching it and posting items and my comments on my Web site. Besides, my views are too hard core right now. Ed and Jennifer Yourdon wrote a good soft-core Y2K book. Then my old friend Mike Hyatt did. Even my business associate John Mauldin has now written a Y2K manuscript. They have all used my site to write their books. So, at least some of message is getting out, though not the hard-core part. That will have to do for now.

My site is my book. I add several pages a day. Its readership is growing. Most new readers don't read the old postings, but they do seem to get committed to reading the new ones each day. That's what it takes for most people to experience the moment of truth, namely, the realization that Bill Gates won't fix Y2K in the last chapter. Nobody will.

We're on the Titanic. It's time to start moving toward the lifeboats. There aren't enough of them for every passenger. Let the folks in the grand ballroom enjoy their evening. They don't want to hear bad news; they're having the time of their lives. Meanwhile, collect your valuables, put on a life jacket, and grab a blanket. It's going to be a long night.

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