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Charlie Munger Says Fiat Currency "Going To Zero Within 100 Years"

Tyler Durden's Photo
by Tyler Durden
Thursday, Feb 17, 2022 - 02:40 AM

With weeks to go until the Berkshire Hathaway annual meeting, Warren Buffett's No. 2 man Charlie Munger held his 'Daily Journal Annual Meeting' this afternoon with the range of topics as varied as one could possibly imagine.

The meeting gave people the opportunity to pick Munger's admittedly aging brain about everything and anything.

The big headline-makers were Munger's dystopian view of the future of fiat currency, his usual - and escalating - hatred of crypto, and his seeming adoration of China.

On the inflationary endgame:

Munger says "inflation is a very serious subject. You can argue that it's the way democracies die... If you overdo it, you can ruin your civilization, so it’s a long-range danger."

"The safe assumption for investors is that over the next 100 years, the [fiat] currency is going to zero... that's my working hypothesis."

On Crypto

"I'm proud of the fact I've avoided it," he said, referring to cryptocurrencies. "It's like some venereal disease ... I just regard it as beneath contempt."

Cryptocurrencies are popular because they can be used for kidnapping, extortion and tax evasion, Munger said. He expressed support for China's move to outlaw private digital currencies.

“China is taking a very mature stance on cryptocurrencies,” Munger said. He said that he wants to “make money by selling people something that will help them get ahead in life, not selling things that are bad for them. People who invest in cryptocurrencies think only about themselves. Don’t think about the customers. I don’t want any of them to marry any of my relatives.”

Munger rejected the idea that he “missed out on something” by not investing in cryptocurrencies.

On central bank digital currencies.

The Fed “can have a currency if they want one,” Munger said. “We’ve got a digital currency already, it’s called a bank account.”

On investing in China

Munger said that “China is a big modern nation. It’s got this huge population and this huge modernity that’s come in the last 30 years, and we invested some money in China because we could get more value in terms of the strength of the enterprise and the price of the security than we could get in the United States.”

On political pressure in China

China and the U.S. have been “massively stupid” to allow the existing tensions to arise, he says.

“Nothing is crazier than people that foment resentments on either side of that one.”

As a reminder, here he is last year praising the 'offing' of Jack Ma..."The Chinese communists did the right thing they just called him up and said 'you aren't going to do it, sonny'".

On market excesses

Certainly the great short squeeze in GameStop was wretched excess, certainly the Bitcoin thing is wretched excess,” Munger said. “I would argue that venture capital is throwing too much money too fast, and there’s a considerable wretched excess in venture capital and other forms of private equity.”

He added that the stock market doesn’t need to be as liquid as it is.

“It’s like a bunch of people getting drunk at a party,” Munger said, adding that it’s like a bunch of people getting drunk at a party and everyone is having so much fun that they don’t think about the consequences. You can argue the wretched excess of the ‘20s gave us the Great Depression and the Great Depression gave us Hitler, the 92-year-old mumbled, so “it’s serious stuff.”

Munger says they’d just need to find a way that makes the stock market less liquid.

He says if he were the dictator of the world he would have some kind of a tax on short-term gains that make the stock market less liquid and drive out this marriage of gambling parlor and legitimate capital development of the country.

“It’s not a good marriage and I think we need a divorce,” he says.

On passive investing

Munger said, “we have a new bunch of emperors.”

He said there’s been an enormous amount of transfer of voting power to passive firms and that’s going to change the world.

“I don’t know what the consequences are going to be, but I predict it will not be good,” he said. “I think the world of Larry Fink; I’m not sure I want him to be my emperor.”

On the inflationary environment being like the '70s

“I certainly hope we’re not going there again,” Munger said of the Volcker rate hikes and ensuing recession.

“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.”

He added that “you may wish you had a Volcker-style recession. I don’t know what you’re going to get.”

On The Fed's policies

We do know that we’re flirting with serious trouble, Munger says

Munger says he thinks that Larry Summers is quite possibly right that we overshot a little with some of the stimulus.

On fiscal policy and handouts

Munger says that the only effective economies that we’ve had that brought us modernity have imposed a lot of hardship on young people who didn’t want to work.

If you take away all the hardship and say you can stay home and get more than if you come to work, it’s quite disruptive to an economic system like ours, he says.

So next time, he says we shouldn’t be so liberal about the stimulus.

On the US deficit:

“You’re flirting with danger somewhere unless there’s some discipline in the process,” Munger said.

Japan has done a bunch of this and gotten by, but he doesn’t think the U.S. will be as good at handling its problems, he said.

On global warming

Munger says that he’ll be surprised if it’s as bad as people think it’ll be.

What worries Munger most about the economy and stock market, and what makes him most optimistic?

It’s amazing how much achievement there’s been in civilization in the last 200 years, but the trouble with that is the basic needs are pretty well-filled, he said.

“The world is not driven by greed, it’s driven by envy,” he said, adding that he (a billionaire) has conquered envy in his own life.

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So to summarize:

  • Fiat's going to zero, but don't buy bitcoin to hedge "the ruin of civilization."

  • The current market excess is a problem... and led to Hitler in the past.

  • Paying people not to work is a disaster for economic productivity and running big deficits is "flirting with danger."

  • US and China should stop rattling sabers.

  • Global warming fearmongering is overblown.

But apart from that, everything for the 92-year-old is awesome!

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Watch the full interview below:

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