Y2K: Gold,
Currency & Stocks
by Ed Lee, author
Y2K: Wired For Chaos
Ed. Note: Edward Lee,
monetary analyst and a leading provider of quality rare and semi-rare coins,
and all forms of bullion gold, silver and platinum, and editor of LeeViews
Newsletter recently published Y2K: Wired For Chaos a "must
read" book for Bull & Bear readers. Edward Lee strongly believes
that Y2K will force us into a powerful inflationary recession. Visit the
Web site at www.certifiedcoins.com
Is Y2K A Real
Danger To Us?
What
is most alarming about the coming Y2K threat is that it is the one event
fixed in time that represents a dire threat to our way of life that most
people are choosing to ignore despite repeated warnings from the CIA, the
US Navy, Coast Guard, SEC, Senate Y2K Committee, the Bank of International
Settlements (BIS), the Bank of England, the Red Cross and a host of mainstream
media that are very reluctantly disgorging some fearsome material. This
sporadic release of critical information leads to an underestimation of
the real threat we face from Y2K both individually and as a nation. Consider
the following information, nearly all of which was released by well intentioned
major sources that have no interest in inflaming panic or fear regarding
this unique event.
U.S. Gov't Changes Laws
To Shield Companies
From Y2K Liability
The
government knows full well that Y2K is not only a serious threat to our
way of life, but that industry and government started way too late to effectively
deal with the problem which has been known about for 20 years. To protect
Y2K negligent industries that are not shielded against litigation, as is
much of the government, the government passed laws that prohibit individuals
and other businesses from filing Y2K suits until March 2000. There is
nothing else that so clearly shows that the government expects Y2K to be
at least moderately severe. Even Clinton's Y2K Czar is advising stocking
up on some extra food and water, although only for a few days. Obviously,
given the above March litigation situation, I recommend far stronger measures
than preparing for a few days of trouble.
"U.S. Gov't Says 80%
of Y2K Repairs
Are Not Permanent"
Software Problems An "Unending River Of Sorrow"
As
I pointed out in my book, Y2K, Wired For Chaos, three of the top
software programs, which are all Windows, included thousands of bugs when
you bought them.
According to a top bug expert, Bruce Brown, "65% of the bugs have been
eliminated in the above three software programs. The bad news is that there
are still 8,000 bugs in them." Another bug expert refers to these systemic
software problems as "an unending river of sorrow." In addition,
the U.S. Government says that "80% of the Y2K repairs are not actual
repairs, but involve a technique called windowing, which tricks the computer
into thinking that Year 2000 isn't Year 2000. The permanent repair is called
"expansion" and requires a tedious line by line repair of all
dates expressed in two-digit years, rather than four digits. Worse, no one
can predict how long these band-aids will lastA few months? A few years?
(Boston Globe) However, all agree that when the band-aids fail, so
will the computers, which is why myself and other Y2K writers believe that
the Year 2000 problem will continue for quite some time beyond this coming
winter.
To
put the cost and time required into perspective, a major utility will have
tens of millions of lines of code, a major bank will have up to several
hundred million lines of code, and our military has billions of lines of
code. Worse, much of this code, such as COBOL, is obsolete and trained experts
are no longer available. A major utility in New Jersey has imported 50 Russian
speaking computer experts because they are familiar with COBOL. Despite
this, they admitted that they cannot supply all of their customers with
electricity come Year 2000 and will resort to "triage", a military
term which means that the critical users such as the military, police and
government will get electricity and non-critical users will get intermittent
service or none at allNew York Time's 12/27/98. On top of this, the
Red Cross announced that they will be setting up Y2K shelters for those
in need.
Just In Time
Will Sink Us
The
just in time supply method we adapted from the Japanese is great for normal
times, but will cause us severe harm during a Y2K scenario. California has
a 30 day supply of foodperiod. The U.S. Mint cannot make the gold and silver
coin blanks quickly enough to meet surging investment and Y2K demand because
they only had one supplier for each. In fact, the U.S. Mint just hired the
Australian Mint to produce our gold Eagle coin blanks, as we don't have
a domestic manufacturer of these. Our other supplier is the Canadian Royal
Mint. Only one firm supplies us with the paper we need to print our own
money and they are two years behind in deliveries. Supermarkets are dependent
on daily deliveries of food and any delays would result in bare shelves
within two days at most. The waiting period of quality wood stoves is soaring,
as we awaken from our summer holidays. If the number of Americans who seriously
prepare for Y2K reaches even 2% of our population, the rest of us will do
without diesel generators, water filters and even cash and gold/silver coins.
Supplies of critical items are extremely thin, as millions will soon realize.
Bank Holidays
& Market Closings?
Writers
that suggest that bank and markets may close for an unknown period of time
due to Y2K related problems are relegated to being extremists and their
views often ignored. However, no thinking humanoid should ignore what the
BIS has to say in their warnings of potential Y2K problems.
BIS,
Basel, Switzerland. The Central Bank for Central Banks: "Some problems
will be missed; new problems will be inadvertently introduced via the new
remediation process; even the best test programs may not detect all potential
errors; uncertainty will remain up to and after Jan. 1. In other words,
it is inevitable that there will be Y2K disruption, although it is not possible
to predict how serious or widespread the disruption will be."
BIS: Y2K: "The inability of a major payment and settlement system to function smoothly, or to have procedures for isolating problems, will intensify uncertainty/concern. In the extreme case, this could have repercussions throughout the global and domestic systems."
BIS: The BIS advises banks to get the home numbers of regulators and government officials so they can be called at night or on weekends to discuss the prudence of closing markets and declaring an emergency financial bank holiday.
Stocks
The
above information was obtained by me from the highly respected HSL newsletter
which has subscribers in 90 countries. (Produced by Harry Schultz, the "world's
highest paid investment consultant", according to many editions of
the Guinness Book of Records since 1981. Subscription info: HSL, P.O. Box
622, CH-1001, Lausanne, Switzerland). Mr. Schultz concludes from the above
and multi-year study of the Y2K threat, "that Y2K will almost certainly
send the stock market sharply lower and, in fact, the market will close
for an extended period." As for me, I will have sold 80% of my stocks
by October, but will retain my gold shares. Harry Schultz believes that
Y2K is so dire a threat that we should forgo trying to make money at this
time and concentrate on protecting what we have.
"SEC To Close All
Non-Compliant Brokerages Starting Dec 1"
According
to an article that appeared in the Boston Globe on 7/12/99, Arthur
Levitt, the head of the SEC, announced that "any firm that cannot achieve
Y2K compliance in a timely fashion will be required to cease doing business
by Dec. 1." Why? Because Y2K compliance is a systemic problem and,
like a chain, no industry is stronger than the weakest link. In other words,
any non-compliant firm would immediately start to contaminate the compliant
firms during the first day of business Year 2000, so the government will
try to eliminate these problem firms one month in advance, which is cutting
it close. Since our major brokerage firms are really a form of bank, it
is more than interesting to repeat the Y2K warnings of Alan Greenspan: "When
it comes to banking, 99% compliancy is not enough." And when has any
industry score 100% on anything?
In
addition, no one has even started to address the huge problem of millions
of customers placing orders for stocks via their non-compliant home computers.
Certainly, the brokerage firms and the major banks have screening devises
that remove most of the incoming bugs, but it only takes a few infections
to contaminate a clean computer system which, in turn, will pass these problems
into their other previously clean systems, which can bring down the entire
in-house network. The only viable procedure is to end computerized trading
except between 100% compliant brokerages, which will have a very negative
effect on the market in total. Indeed, the Senate Y2K Committee warns that
"infections of repaired U.S. computer systems from links to unfixed
foreign ones are also worrisome," which powerfully emphasizes my point.
We are a wired together world. Can you imagine Wall Street refusing to do
business with European and Asian firms?
Currency Makes
Our World Go Round
Despite
their huge success in convincing the vast majority of Americans that a cashless
society is the future, can you imagine waking up tomorrow and not having
real money available to spend or operate your business? And what if ATM's
didn't continue to disgorge $20's on demand? Far fetched? Hardly, Boston
recently lost 400 ATM's in one day due to "technological difficulties,
meaning computer problems. Alan Greenspan mentioned in May that "we
were already experiencing significant financial losses due to computer problems"
and he is very knowledgeable about computers (USA Today).
Despite
their attempt to stamp out the use of money as best they can, the government
knows full well that the system works like this. On Friday, many people
go to an ATM and withdraw $60 for weekend spending money. This is then spent
at a ski resort, at McDonald's, for pizza and so forth. On Monday, countless
businesses redeposit this cash back into banks and again make it available
directly or indirectly via ATM's. Anything that disrupts this ebb and flow
of currency is a dire threat to our way of life and Y2K is causing many,
including myself, to take cash out of the bank and simply sit on it just
in case there is a bank holiday or a shortage of currency. In fact, a CNN/Time
poll indicated that 38% of Americans plan on taking some cash out of the
banks in preparation for Y2K and the same percentage of computer experts
plan on doing the same thing.
Recognizing
this, the government announced last November that they were going to print
an additional $50 billion in currency to help with expected increases in
demand for cash. Although this is true, the government "forgot"
to mention that the specialized paper needed to print our new high tech
paper money is only available from the Crane paper company here in New Hampshire.
Worse, they forgot to mention that the final delivery of the paper needed
to keep their word won't be ready until September 30, 2002, rather late
for Y2K problems. Who says this is true? The government's own currency printing
department, which is called the Bureau of Engraving and Printing and known
as the BEP (Coin World). By the way, this currency paper order was
for a record $262.4 million.
Knowing
the very real danger of a run on our banks, the Fed sprang into action with
another combination of truth and omissionor is it smoke and mirrors? They
announced that Americans have $4.5 trillion on deposit and that there is
about $460 billion in cash available. In reality, although there may be
$460 billion in currency in existence, 64% of that cash is in use in countries
like Russia and will never be available for use here. Russia needs about
$200 million in dollars every day to survive and the mighty dollar is the
world's #1 reserve currency, by far.
That
reduces the amount of cash available here to about $165 billion. Of that,
about $110 billion is held as mandated reserves by the Fed and other banks,
leaving a mere $55 billion to operate a country of 270 million people. That
is only a couple of hundred dollars a person and nearly all of that is being
used by businesses which have to have access to cash in order to make sales
and change. No wonder the government is worried. Y2K is a financial trigger
pointed at the head of our financial system from a number of directions
and all at once.
Too Much Money?
Bank Of England To Make Additional
$3.23 Trillion Available For Y2K
Although
they are reluctant to do so presently, the government can dramatically increase
the amount of cash available by various means and it is in their best interests
to do so. By having the world's #1 reserve currency, the U.S. saves more
than $12 billion in interest as these dollars are exchanged for other currencies.
After all, it only costs them 4 cents to print a $100 bill. The government
can cut in half the statutory requirements for having $110 billion in reserve,
effectively doubling the amount of currency in circulation. They can also
refrain from printing $1.00 bills, and print mostly $100 bills that cost
the same 4 cents, but which release 100 times more cash into a Y2K cash
starved scenario. They also have the statutory authority and the plates
to again print $500 and $1,000 bills, which can be held as cash reserves
while the smaller bills are released into circulation.
How Much Will the
U.S. Make Available?
My
prediction is for an inflationary recession as Y2K causes significant production
problems, while the government floods the country with tens of billions
of additional dollars, leading to a situation in which we have too much
money chasing too few goods. This obviously is the worst of both worlds.
In fact, a return of inflation has already started with gasoline prices
up 7-8% in a recent two-week period.
Speaking
of flooding the country with too much money, the British government reported
that they will broaden the types of securities that the Bank of England
will accept as collateral, which will increase the available money by a
whopping $3.23 trillion, a sevenfold increase. This is being done specifically
to shield their markets from Y2K related damage. The much feared erosion
of liquidity that Y2K will bring may have already begun, according to this
article that appeared in the August 8, 1999 issue of the Wall Street
Journal.
Given
the much larger size of the U.S. economy, compared to England, our government
may have to make, and will make, many trillions of dollars available to
protect our economy. All it takes is a few phone calls. Unfortunately, physical
currency is a different problem.
Gold Suffers An Historical Attack Talking The Market Down
There
exists an ongoing and unprecedented attack on gold that is so serious that
it resulted in an investigation by the Gold Anti Trust Association (GATA).
This attack goes far beyond what we have seen from the U.S. government in
its never ending campaign to hold gold below $300 an oz. Alan Greenspan
is on record as stating that the U.S. government will loan any amount of
gold forward to hold the line on gold. Simply put, he government lends gold
at 1% a year interest to mines, using their in-ground reserves as collateral.
The mines then sell off the government's gold and replace it when they mine
theirs. How would you like your business to be financed by the government
for 1%, especially as it is done with our tax dollars, and without our consent?
This
has obviously weakened gold, but it was also obvious that our government
was satisfied with $285 gold. However, Britain took the unprecedented step
of not only dumping gold, but announcing it in advance to greatly magnify
the effect. No other government in Europe has ever done this because it
results in gold moving down in advance, netting the government much less
for its gold Not only did England not care, they announced that they would
sell off half of their gold, which would be about 450 tons less the 25 tons
already dumped. Nor did they care about the overwhelming number of their
own citizens that were against selling off their gold and who were in agreement
with Alan Greenspan in recognizing its importance as the "ultimate
form of payment."
This
was such a strange situation that it seemed to make no sense at all. It
took me some time to find out why. In 1998 Britain was #2 in Y2K preparation
and they fell to #8 in 1999, so they are frightened that too many people
"will go for the gold." They have much to fear as 30-50% of British
computers are not only in danger from Y2K, but many may have problems with
the well-known four nine date meaning 9/9/99, which is almost upon us. The
significance of 9999 is that it is a shut down code for many computers.
Many confuse it as a Y2K test, which it isn't, but it is still a test of
considerable importance.
On
top of this, the IMF threatened last year to sell off $1.2 billion in gold
and to use the proceeds to help poor countries. Although I am greatly in
favor of holding onto gold reserves, I thought this was okay if the money
went to the poor. Alas, more smoke and mirrors. This year it was revealed
that no gold was sold, that the money was going to be deposited in the IMF
member countries at 4% interest, and that some portion of that interest
was to be given to the poor countries. Meanwhile, 90 gold exporting countries,
all of which are poor, were hurt by the 11% drop in the price of gold and
had to lay off miners. South Africa alone laid off 11,500 miners and numerous
mines are being closed, which further tightens the low supplies of physical
gold.
"Central
banks are motivated to manipulate gold. Gold is the barometer by which central
bank management of a country's currency and economy is gauged and evaluated.
A rising gold price is a sign that monetary danger lies ahead, such as inflation
or banking problems. Clearly, central banks would rather not have gold looking
over their shoulders at their every move. So the central banks have been
at war with gold." Barrons, May 31, 1999.
Only Gold Will Do
Fortunately
for the owners of gold, central banks cannot control Y2K, so gold is the
ultimate form of financial insurance against the ravages of Y2K and the
best way to maintain the current value of your assets. Unfortunately, gold
is in short supply and it is only the smoke and mirrors games that banks
play that gives us their version of reality. The U.S. has the world's largest
pile of gold (Europeans disagree) and it only totals 262 million ounces
less what is loaned out. That is less than one oz per person on average
and I know people that want to take hundreds of thousands out of paper assets
and many are buying gold coins. One couple wants to take $2-$3 million out
of the banks. For this kind of withdrawal, cash alone isn't feasible and
not very smart. Only gold will do, which is why Alan Greenspan watches it
and says that "it is the ultimate form of payment." I couldn't
have said it better myself, although Mark Twain might have said, "Buy
gold coins. They ain't making many anymore."
Editor's
Note: We highly recommend that
Bull & Bear readers purchase Edward Lee's book, Y2K: Wired For Chaos
Practical Tips For Dealing With Y2K Including Cash, Gold, Coins,
Smart Banking Moves, Generators and more, 324 pages. The book
also contains four chapters by Harry Schultz, the "world's highest
paid investment consultant", Guiness Book of Records. John Schnase,
Host of KCRE-FM in Crescent City, CA recently stated, "Y2K: Wired For
Chaos is an outstanding work of publication and the finest book on Y2K that
I have Read."
Mr.
Lee has appeared twice on the highly-regarded Bloomberg Money Guide and
numerous radio and TV shows because of his book and the timeliness of this
critical issue.
Lee
says to not be fooled by reassuring statements from government and industry.
On August 15 government said that "Only three states were ready for
Y2k" (Boston Globe) and a mere seven weeks later they claim that 43
states are ready? Impossible! Y2k isn't as much a computer problem as a
systems wide national and international problem. For example, there are
an estimated 77 billion microprocessors woldwide and 15% are potentially
a problem and most cannot be reached to even test them much less repair.
The CIA has warned that foreign countries are way behind in Y2k repair work
and we get 50% of our energy from these same countries. Without energy we
are in deep trouble as everything is energy dependent. Even Boston is closing
down five hours early for New Year's Eve "so the kids can get home
early." Ed says that "this is true as Boston doesn't want to get
stuck with caring for an additional 2 million visitors including kids and
some cities are ending subway service just before midnight as they don't
want thousands stranded in tunnels."
Ed
Lee is offering Bull & Bear readers a Special Half Price Offer for his
book, Y2K: Wired For Chaos, of just $12.50 including shipping and
handling a savings of $12.50. To order write Lee Certified Coins, Ltd.,
P.O. Box 1045, 454 Daniel Webster Hwy., Merrimack, NH 03054 or call toll-free
800-835-6000 or (603) 429-0869, Fax: (603) 429-2095. Visit the Web site
at www.certifiedcoins.com
