Yardeni, chief economist at Deutsche Bank Research, probably spends more time exploring the Y2K phenomenon than anyone around Wall Street. As a leading expert on the subject, Yardeni says the likelihood of recession in 2000 is relatively high because of coming computer glitches.
The problem is the double zero, which computer systems may read as 1900 rather than 2000 because only two digits have been used for years in most systems to conserve memory. If these programs aren't fixed to ensure the proper reading of the date when 2000 arrives, huge systemic breakdowns are feared.
Yardeni's Y2K Reporter of Sept. 21, however, is upbeat on the subject nearest and dearest to recipients of federal transfer payments. The question they've been increasingly concerned about is whether the Y2K problem will disrupt delivery of the money they receive from Washington.
Yardeni's advisory, titled "Will Uncle Sam Compute in 2000?" says the most recent assessment of the federal Financial Management Service reflects increasing optimism. A recent edition of Federal Computer Week reports that the Financial Management Service, the Treasury Department's main check-writing agency, has brought on line two Y2K-compliant systems for processing Social Security retirement and disability checks.
These account for about 70 percent of the 850 million payments the agency makes annually. The agency also pays veterans' benefits, does tax refunds, and processes some federal salary and vendor payments. With just under 15 months to go until 2000, this move seems to give the payment agency reasonable time to smooth out its computer operation.
One of the first known federal Y2K glitches occurred at the Social Security Administration in 1989 when a field office tried to rejigger a repayment schedule out to the year 2000. The system wouldn't handle dates after 2000, though, which brought the realization that the year 2000 would pose a daunting data-processing challenge.
While those receiving federal benefits can take heart from the progress at Social Security and the Financial Management Service, Yardeni's evaluation of other government operations is a mixed bag. Other well-prepared agencies include the Small Business Administration, Commerce Department, General Services Administration and Environmental Protection Agency.
The worst laggards, according to a House subcommittee monitoring the situation, include the departments of State, Energy, Justice, Education, and Health and Human Services.
Despite the poor marks received by some important departments, Yardeni says the U.S. government is nevertheless in reasonably good shape. He goes so far as to reassure clients that the "worst case" scenario when 2000 arrives is much less likely than last year.
One of Yardeni's more interesting views, which came as a somewhat downbeat aside near the end of the report, concerned the air transportation situation. He says that while the Federal Aviation Administration will "keep the jets flying in January 2000," he doubts that full schedules will be possible initially. Domestic traffic, he estimates, will be 75 percent of normal for a few weeks while international flights might suffer a temporary 30 percent reduction.