This year Charlie Munger had a lot to say at meetings and in interviews about his outlook for the economy, inflation, currencies, and geopolitical risks.
Here are some really stunning quotes that the legendary 98 year old investor gave about the current situation and the future risks.
Charlie Munger Predictions
“When I was at the Harvard Law School, we seldom traded a million shares in a day. Now we trade billions. We don’t need a stock market that liquid. What we’re getting is wretched excess and danger for the country, and everybody loves it because it’s like a bunch of people get drunk at a party, they’re having so much fun getting drunk that they don’t think about the consequences. We don’t need this wretched excess. It has bad consequences, you can argue that the wretched excesses of the twenties gave us the Great Depression and the Great Depression gave us Hitler. This is serious stuff. But it’s awfully hard. A lot of people like a drunken brawl. And so far, those are the people that are winning. And a lot of people are making money out of our brawl. – Charlie Munger[1]
“The idea of getting more value than you pay for, that’s what investment is, if you want to be successful, you have to get more value than you pay for. And so it’s never going to be obsolete. Now you can get a whole body of people that don’t even know what they’re buying, they just quote quotations on the ticker. I don’t think it’s helpful to have… Think of the past crazy booms and how they worked out, the South Seas bubble, the bubble in the late 20s, so on and so on. We’ve had this since the dawn of capitalism. We’ve had crazy bubbles.” – Charlie Munger
He believes the stock market has turned into a speculative casino of gambling and detached from underlying stock values in many cases. This is what creates bubbles that eventually pop.
“When you throw money…when you print money on the scale that modern nations are printing it, Japan, the United States, Europe, et cetera. We’re getting into new territory in terms of size. And in spite of all this very extreme government money printing they’ve done, they haven’t had terrible consequences. Now [Japan] had 25 years of stasis, with living standards not improving very much. I don’t think that came from their macroeconomic policies. I think that came from the rise of tough competition for their export powerhouse from China and Korea.”
“But at any rate, it’s weird what’s happening, and nobody knows for sure how it’s going to work out. I think it’s encouraging that Japan could print as much money as it has and remain as civilized and calm and admirable as it has. And so I hope to God the United States has a similar happy outcome. But I think the Japanese are better adapted for stasis than we are. There’s never been anything quite like what we’re doing now, and we do know from what’s happened in other nations if you try and print too much money, it eventually causes terrible trouble. And we’re closer to terrible trouble than we’ve been in the past, but it may still be a long way off. I certainly hope so.” – Charlie Munger
Out of control money printing does eventually lead to financial consequences based on history. He says Japan not suffering from their own money printing may be the exception not the rule going into the future. Trouble is near.
“Well, when Volker, after the seventies, took the prime rate to 20% and the government was paying 15% on its government bonds, that was a horrible recession. Lasted a long time, caused a lot of anger and agony. And I certainly hope we’re not going there again. I think the conditions that allowed Volcker to do that without an interference from the politicians were very unusual, and I think in 20/20 hindsight, it was a good thing that he did it. I would not predict that our modern politicians will be as willing to permit a new Volcker to get that tough with the economy and bring on that kind of a recession. So I think the new troubles are likely to be different from the old troubles. You may wish you had you had a Volcker style recession instead of what you’re going to get. The troubles that come to us could be worse than what Volcker was dealing with. And harder to fix.”
Munger explains that this current inflation is not the same as what Volker fought and that politicians do not seem to have the same will to allow economic hardship to battle inflation. Volker was allowed to do whatever it took to get inflation under control. Powell may not be given the same freedom.
“Think of all the Latin American countries that print too much money. They get strongmen and so forth. That’s what Plato said happened in the early Greek city state democracies. One person, one vote. A lot of egality and you get demagogues, and the demagogues lather up the population and pretty soon you don’t have your democracy anymore. I don’t think that was a crazy idea on Plato’s part. I think that accurately described what happened in Greece way back then, and it’s happened again and again and again in Latin America. We don’t want to go there. At least I don’t.” – Charlie Munger
Most of the time the hardship of inflation leads to the rise of leaders that promise to save the population and restore prosperity. This is usually the gateway to dictators.
“We’ve done something pretty extreme, and we don’t know how bad the troubles will be, whether we’re going to be like Japan or something a lot worse. What makes life interesting is we don’t know how it’s going to work out. I think we do know we’re flirting with serious trouble. I think we also know that some of our earlier fears were overblown. Japan is still existing as a civilized nation. In spite of unbelievable excess by all former standards in terms of money printing. Think of how seductive it is. You have a bunch of interest-bearing debts, and you pay them off with checking accounts, which you’re no longer paying interest. Think about seductive that is for a bunch of legislators. You get rid of the interest payments and the money supply goes up. It seems like heaven. And of course, when things get that seductive, they’re likely to be overused.” – Charlie Munger
Government spending takes advantage of easy monetary policy as it leads to easy debt without much increased taxation. Munger warns this is the core problem of easy monetary policy, government loses fiscal restraint.
Charlie Munger Predicts Crash
“Because all those problems are real, and so tempting to get rid of debt by just giving guy a non-interest bearing account. Not only do we have serious problem but solution to it, the easiest for politicians and Federal Reserve is just print more money, and solve the temporary problems that way. That of course creates long-term dangers. We know what happened in Germany when the Weimar just kept printing, the whole thing blew up. All this stuff is dangerous and serious. You don’t want to have a bunch of politicians doing whatever is easy, and on theory didn’t hurt us last time, so we can double and do it one more time. We know what happens on everlasting doubling, doubling, doubling you will have a very different government if you keep doing that enough. So you’re flirting with danger somewhere unless there’s some discipline in the process. But I don’t regard Japan in some terrible danger. They’ve done a huge amount of this and gotten by, I don’t think we’ll be as good at handling our problems as Japan is.” – Charlie Munger[2]
No consequences for government spending and debt just leads to more of the same for political gain. The U.S. is very different than Japan and the outcome of our endless national debt and dollar printing should be very different. The U.S. has been the economic growth engine of the world in the last 100 years and the consequences could be global.
“What brought in Hitler was the combination of the Weimer inflation, where they utterly destroyed the savings of the middle class in Germany, followed by the Great Depression. It was a 1, 2 punch.”
“And Hitler came in, crazy demagogue, with 40% of the votes. And pretty soon we had a dictator hell bent for World War. So the history is not pleasant. And Germany was a very advanced and civilized nation, the Germany that Hitler took over.”
“I always say that the interesting thing about that was Little Albert Einstein, a little Jewish boy, got his entire primary education with the insistence of the Catholic Church in Germany. Now that is a very civilized nation. So if you let your nation deteriorate too much, what you get is a Hitler. We proved it.” – Charlie Munger
Huge political risks are present when currency buying power, earnings power, and savings value are destroyed by a government. A western country can be at risk of a strong man coming to power that promises to solve all the economic problems and is rewarded with allegiance when trying to do it.
His predictions go beyond just a stock market crash and explain the dangers of an economic crash and the risk of political instability.
Charlie Munger: Currency Going to Zero
“If you look at the Roman Republic, they inflated the currency steadily for hundreds of years. Eventually the whole damn Roman Empire collapsed. So inflation it’s the biggest long range danger we have probably, apart from nuclear war. I think the safe assumption for an investor is that over the next hundred years, the currency is going to zero. That is my working hypothesis.” – Charlie Munger [3]
Munger predicts that the U.S. dollar will likely go to zero value over the next century. This is not as crazy as it sounds. The U.S. Dollar has lost over 96% of its value since the Federal Reserve was founded.[4] The U.S. dollar has also lost 86% its value just since 1971 when the U.S. left the gold standard.[5]
His prediction is almost a certainty based on the past trends of loss of purchasing power. This should be a wake up call of the long-term danger of inflation to saving accounts not invested in assets.
Lots of his warnings center around inflation and the political instability it causes—a lot to consider.