Off The Record
Charlie Munger, One Of The Richest Man In America Predicts Horrible Economic Crisis Where Everything Is Bound To Collapse
Charlie Munger, one of the richest men in America thinks that the politics of printing more and more money will collapse the entire economy and will possibly bring more dictators and wars.
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 sayings that Charlie gave about the current worldwide economy and the future risks:
“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 that the stock market has become more life casino instead of based on stock value. He believes this creates a bubble that will eventually explode.
“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
He believes that printing more money almost always leads to financial crash based on previous history.
“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.”
“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 in the midst of inflation comes a leader who promises prosperity to all nation, but that’s almost always the gateway to dictatorship.
“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
The core problem, as Charlie warns, is government spending takes advantage of easy monetary policy as it leads to easy debt without much increased taxation.
He continues:
“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]
“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
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]
Charlie predicts that the U.S. dollar will drop down to zero over the next century. The U.S. dollar has lost over 96% of its value since the Federal Reserve was founded [4] The USD has also lost 86% of its value just since 1971 when the U.S. left the gold standard. [5]
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Thanks to Steve Burns for putting together an amazing article published on New Trader U.
