In an exclusive interview Wednesday with Yahoo Finance Editor-in-Chief Andy Serwer, legendary investor Charlie Munger weighed in on the high stakes of soaring inflation in the United States.
Citing examples from the Roman Republic to Adolf Hitler to Latin America, Munger said, “Inflation is a very serious subject, you could argue it is the way democracies die.”
He notes that it was after of years of inflation when “eventually the whole damn Roman Empire collapsed, so [the current situation] is the biggest long-range danger we have, apart from nuclear war.”
The recent Consumer Price Index (CPI) data from the Bureau of Labor Statistics found U.S. inflation accelerating in January at its highest rate in 40 years, with prices rising across a wide range of goods and services. The 7.5% annual gain in January — driven by high demand and lingering shortages from supply chain disruptions — was a jump from the 7.0% year-over-year increase seen in December's number.
Munger, 98, is vice chairman of Berkshire Hathaway (BRK-A, BRK-B). The company, headquartered in Omaha, Nebraska, has long been led by Warren Buffett, the world-famous investor who serves as chairman and chief executive.
At Berkshire Hathaway’s 2021 annual meeting, Greg Abel was identified as Buffett’s successor once Buffett steps down.
Later on Wednesday during the annual meeting of the Daily Journal corporation, Munger’s publishing and technology company, he expanded on his inflation comments noting that he didn’t know how it would all work out in the U.S. context “but we are flirting with serious trouble.”
He brought up more historical examples including Greek city states and Japan, saying that the Asian nation is another example of a nation that was seriously hamstrung by mismanaging inflation but is now “still existing as a civilized nation.”
‘They probably overdid it a little’
Over the course of the conversation, Munger lightly criticized the U.S. government’s response to high inflation by pointing towards a reaction to the pandemic that was “was bigger than it’s ever been before in the history of the United States.”
Experts from the U.S. CBO director to others have noted that the infusion of cash into the economy from both Congress and the Federal Reserve likely saved the economy while also being a factor behind the current high prices. The spending is one factor in addition to issues like supply chain snarls and pent-up demand. Some on the left also argue that corporations are using the moment to "price gouge" and drive up prices even more.
Munger says that, looking back, the government “probably overdid it a little, they threw so much money, so fast, that it is hard for the restaurants to get people to do the work.” Munger seemed to be echoing concerns of some that the array of government support, in the form the recently expired expanded Child Tax Credit or a moratorium on student loans, has led some to suggest workers may resist getting back into the workforce.
“But I don't criticize it,” Munger said, referring to the government's response. “it is hard to make these decisions under pressure.”
Munger clearly sees inflation not going anywhere in the decades ahead and he offered this discouragement to anyone looking to parking their money in currency for the long term: “I think the safe assumption for an investor is that over the next hundred years, the currency is going to zero," he said. "That is my working hypothesis.”
Ben Werschkul is a writer and producer for Yahoo Finance in Washington, DC.