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According to Charlie Munger, “If you aren’t confused by what’s going on, you’re not paying attention”. Inflation has been at its highest levels in generations in recent years. The impacts of which have been devastating. It’s now even estimated that a staggering 61% of Americans are experiencing severe financial hardship due to this high inflation. However, there’s a hope out there that the high levels of inflation seen in recent years was just a temporary thing. The belief is that relatively shortly, inflation will return to very low levels. Legendary investor Charlie Munger disagreed. Before his passing, Munger was ringing alarm bells about the future of inflation and the economy.
In this video, we're going to cover why Charlie Munger believed inflation is here to stay, and arguably most importantly, how you can protect your money from the devastating impacts of high inflation. Over the past couple of years, inflation has been at levels not seen in decades. In June of 2022, inflation hit a peak of 9.1%. You have to go back roughly 40 years to the early 1980s to find a period of time in which inflation was this high.
As Charlie mentioned in the clip, a big cause of this sky high inflation is money printing. Take a look at this chart of the money supply in the United States dating back to 1960. Money supply is exactly what it sounds like, it is a measure of all the readily available money floating around in the economy. As we can see in the chart here, the money supply in the US was growing at an ever increasing rate. However, things really started to get crazy in 2020. In order to prevent a widespread financial collapse, the US Federal Reserve took truly unprecedented actions. This, combined with drastic steps by the government to support the economy, lead to trillions of new dollars getting printed. In previous interviews, Charlie Munger has compared this massive amount of money printing to an individual using illicit substances. At first, it feels absolutely amazing. But over time, there are very severe consequences. When it comes to the economy, one of those severe consequences is inflation. To quote the famous economist Milton Friedman, inflation happens when there is too much money chasing too few goods. While that may sound like a complicated concept, trust me, it’s actually very simple.
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