There is now a 70% likelihood of a serious recession set off by the millennium bug, according to the Wall Street economist who has most closely tracked the year-2000 computer problem.
The slump could begin a year from now if banks turn skittish about business prospects of borrowers whose computers could fail when confronted by "00" at the turn of the century.
"I can no longer say with any confidence that there is enough time to avoid a severe global Y2K recession," warned Edward Yardeni, chief economist at Deutsche Bank Securities Inc., New York.
As of Monday, only 544 calendar days-and far fewer business days-remain "until judgment day for our computers on Jan. 1, 2000," he noted. "Progress is occurring but not as fast as the year 2000 is approaching."
Computers tripped up by the century-date changeover may either fail outright or, perhaps even worse, spew flawed data. Key strands of the increasingly interwoven global economy could unravel.
"One possible scenario is that bankers will start to become much more concerned next year about Y2K risks in their loan portfolios," Mr. Yardeni said. "After looking more closely, they may decide that some borrowers should be cut off from credit."
Borrowers are being questioned about their year-2000 readiness, "but I'm not sure bankers know what to do after that," he said. "They are trying to establish some kind of scoring system, but Y2K is not something most loan officers are qualified to assess."
The economist also questioned whether credit ratings agencies are on top of the year-2000 issue. "They totally missed Asia, and many lenders took big hits as a result," he said. "It could be even more grievous to ignore this."
Mr. Yardeni readily acknowledges that he is an alarmist on the year-2000 issue but claims not to be a doomsayer. "I want to be an economist, not a Jeremiah," he said, referring to the biblical prophet.
"I still hope that a cooperative global crash program to fix the problems, and prepare for inevitable disruptions caused by some failures, will reduce the recessionary impact of the Y2K forces headed our way," he said.
But the economist said he felt the response to the year-2000 issue from global leaders "has been pathetic." The communique after the recent annual summit conference of the Group of Eight biggest industrial nations mentioned Y2K as the 25th among 25 points discussed.
In the United States key government agencies, including the Securities and Exchange Commission, the Federal Communications Commission, and the Nuclear Regulatory Commission, "all admit they don't have the necessary information to assess the gravity of the situation," he said.
Meanwhile, "it is widely assumed that companies will be ready for the century-date change. However, given the lack of adequate disclosure, this may be a naively optimistic assumption," Mr. Yardeni said.
Outside the United States there is virtually no information available on progress, he said, "because the level of awareness is dangerously low in most countries."
Mr. Yardeni said disarray from Y2K problems could cause a recession as bad as or even worse than the 1973-74 downturn triggered by interruptions in oil supplies. In the United States the economy could fall 5% over 12 to 24 months, beginning late next year.