Do Zeroes Matter?

Once upon a time, not so long ago, the word “trillion” was reserved for astronomers, not for central bankers or politicians in conjunction with terms like “stimulus.”

Power of the Press – The Printing Press

Since the subject of today’s article is situated in rarefied air, we begin with these words…

Once upon a time, not so long ago, the word “trillion” was reserved for astronomers, not for central bankers or politicians in conjunction with terms like “stimulus.”

Baby Boomers remember sitting at their desks trying desperately how to work out what a “billion” meant. That word was usually mentioned in high school science class to describe some obscure, far away object in space. Do you remember trying to focus on what your teacher was saying back then? You know, saying things like “the distance from the earth to the sun is 93 million miles.”

Therefore, you could somehow imagine that a billion was about ten times as far as the sun. Yes, the omnipresent decimal system being used to shape the way we think.

But back then, we really weren’t that interested in trying to sort out the meaning of a “billion.”  

Here we are, 50 years later, well on in adult life. And now we’re trying to work out what a “trillion” means…

I don’t know where to begin to process that one. 

Ironically, most of us are still sitting at a desk – one with a computer on it. Despite having “all of man’s knowledge” readily available to us at the click of a mouse, we remain as much in the dark about trying to make sense of a “trillion” as we were back in the 1970s – when there were a lot fewer zeros.

Actually, a lot more zeros is starting to slowly make sense: No matter how many times you add zero to itself, the answer remains the same.

Is this the way we should think about the word “trillion”? Just a bunch of zeros that don’t really matter? 

More to the point, what happens when they do start to matter?

Some people fear that there may come a time when all those zeros get together and gang up on the world’s monetary system in the form of inflation. Type in the words “How is inflation defined” into Google, and this is what is reported:

Inflation is the decline of purchasing power of a given currency over time 

A few years ago, I read an interesting book by Adam Fergusson. The title of the book was “When Money Dies.” It gave a historical account of what life was like in Germany during a period of hyperinflation in the 1920s. One of the things that struck me was how innocently it all began. 

To meet growing budget deficits, it became an accepted practice to simply “print more money” to make up for the shortfall. This “crossing the Rubicon” moment ultimately consigned the Germans to the brutal ravages of hyperinflation that lied ahead.

There were accounts of how people would steal a basket full of money, dump it out, and keep the basket. 

The basket had utility; money did not.

I can recall two moments when all those zeros caught up to me.  

One time was in 2009, in Calgary, Alberta, at a steak restaurant. For some reason, it suddenly dawned on me that paying $50 or $60 for a steak seemed wildly excessive. The next time was just a few months ago at a local restaurant. The same thing happened. When did it become fashionable to pay $22 for a hamburger and a soda?

An old saying goes like this: “It is always darkest before the dawn.” Some people take this to mean that you should never give up hope because positive change could be right around the next corner. 

Others prefer a more literal translation. You may not see what is coming until it is upon you.  

This is how it feels like to me.  

All those zeros, silently lurking out there, trying to come alive and find an integer to cozy up to and be heard.

The Germans never had a chance – they didn’t see it coming. Will we?

-John Top, the technical trader

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