Charlie Munger Predicts Inflation ‘Inevitable’ Due To Democracy And Tells How To Protect It – ‘A Lot Of People Will Suffer’

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Charlie Munger passed away last year, but his life insights and decades of experience in the financial markets continue to guide millions of people around the world. There is no issue in the economic arena that Munger does not address. As inflation remains a hot topic in America amid the high cost of living, we decided to dig deeper into the archives of Charlie Munger’s letters to shareholders and speech transcripts to see what he predicted about the phenomenon.

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‘Further Inflation Is Inevitable’ Over the Next 100 Years

During a Q&A session at Daily Journal Corporation’s 2023 shareholder meeting, Charlie Munger was asked about the inflationary crisis. Munger made some prescient comments in response:

“I think more inflation in the next 100 years is inevitable – given the nature of democratic politics – politics in a democracy. So I think we will have more inflation.”

Munger also said the Daily Journal owns securities instead of government bonds because of inflation.

According to Charlie Munger archives compiled by The Inoculated Investor, the billionaire was asked about inflation during a conversation at the Pasadena Convention Center in 2011.

Munger replied that it is “very likely” that we will experience inflation in the next 50 to 100 years. However, he argues that inflation does not hinder the success of civilization. At another point, Munger reiterated:

“I remember buying ice cream cones and hamburgers for a nickel. On the other hand, after inflation, the country has done very well. Many people who are Jeremiah at that age have been proven wrong; the country can withstand a lot of inflation. as received.”

‘Many People Will Suffer’ Because of Inflation

In 2022, speaking at the Singleton Foundation for Financial Literacy and Entrepreneurship event, Munger predicted that life will become more difficult for the general public due to inflation.

“I don’t think most people will do well with inflation. I think most people will be better off, at least the people with money will be better off, if there is no inflation. . So it’s just a question of how many will not benefit.

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The Relationship Between Democratic Government and Inflation By Charlie Munger

During the talk, Munger said he believed inflation would rise because “democratically elected politicians” would “eventually” print too much money.

Whitney Tilson, Editor of Stansberry Investment Advisory and founder of Empire Financial Research, has been a close follower of Charlie Munger. He compiled an extensive archive of transcripts of Charlie Munger’s speeches, dating back to when no recordings were allowed during Berkshire Hathaway meetings.

According to Tilson’s notes, Charlie Munger once said about inflation and its strange relationship to democratic government:

“I think that democracy is vulnerable to inflation because politicians will naturally spend (too much) – they have the power to print money and they will use money to get votes.”

Munger said that while inflation has continued to rise over the long term, it has increased in democracies. He said there was “no inflation” in the US from 1860 to 1914, which saw “strong growth.”

“I don’t think we’re going to get deflation. The bias is more pro-inflationary than it was between 1860-1914. But I don’t think other forms of government are going to be any better. Some of the worst excesses happen under tyranny,” Munger said.

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Munger Believes There Is No ‘Perfect Correlation’ Between Inflation and Interest Rates

According to the archive, Charlie Munger once said he never believed there was a “perfect correlation” between interest rates and inflation.

“I think there is some relationship, but it’s complex and not easy to measure.”

High Quality Business During Inflation

Charlie Munger thought that companies that make high quality products for a certain niche of customers who can afford higher prices are better positioned to raise prices. He gave the example of ISCAR, a metal cutting tool company that Berkshire Warren Buffett bought in 2006.

“Iscar is so good at delivering a great product, I find it hard to imagine not selling more to customers who make more money.”

How To Protect Inflation By Charlie Munger

At WESCO’s annual meeting in 2009, Munger was asked by many people about the problem of inflation and how to protect it. Here’s what he said:

“I remember a 2c stamp, a 5c hamburger, and a 30c/hour minimum wage. In the 80 years since those prices, there has been a lot of inflation. Does it destroy investment opportunities? No. It’s not easy, there are always too many risks, and of course, there will be inflation .”

Munger also cited buying government bonds as a hedge against inflation.

“We buy utility bonds to yield nine or 10%. What about inflation, you might ask? Well, government bonds yield 3%, so 9% isn’t bad. We don’t have one size fits all.”

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