Buffett Business Partner Munger Says Inflation ‘Huge Danger’ and How ‘Democracies Die’

Charlie Munger, billionaire investor and longtime business partner of Warren Buffett, issued a stark warning on the persistent price pressures gripping the U.S. economy, saying at a Wednesday event in Los Angeles that inflation was a “huge danger” and “possibly the way democracies die.”

The 98-year-old Munger made the somber remarks during a wide-ranging discussion at the annual general meeting of Los Angeles-based publication Daily Journal, a company he has led since 1977.

“We’ve done something extreme,” Munger said, responding to a question about the impact of the unprecedented levels of pandemic-era fiscal and monetary stimulus.

“We don’t know how bad the troubles will be,” he continued, pointing to a Japan-type economic stagnation as one possibility, or “something a lot worse.”

He cited the experience of early Greek city-state democracies that deteriorated after demagogues rose to power, in part on an inflationary wave. Latin American countries that printed too much money and ended up with hyperinflationary crises that paved the way for authoritarian strongmen also offer a salient warning, Munger added.

Munger went on to say that “we are flirting with serious trouble, it’s possibly the way democracies die. It’s a huge danger.”

“If you try and print too much money, it eventually causes terrible trouble,” Munger said. “And we’re closer to terrible trouble than we’ve been in the past, but it may still a long way off—I certainly hope so,” he added.

Munger made similar remarks about the inflationary threat to democracy in an interview with Yahoo Finance on Wednesday, in which he called inflation a “very serious subject, you could argue it is the way democracies die.”

He added that the current inflationary environment “is the biggest long-range danger we have, apart from nuclear war.”

His remarks come as the United States, and many other countries, grapple with an inflationary impulse that has been higher and longer lasting than policymakers initially expected.

Consumer price inflation in the United States surged 7.5 percent in the year through January, the fastest pace in 40 years.

Wholesale price inflation, which reflects the costs borne by producers of goods and services, vaulted by 9.7 percent in the 12 months through January, a whisker away from a record-high 9.8 percent pace for the two months prior.

The elevated wholesale inflation readings suggests that consumers are likely to see higher prices down the road as rises in production costs tend to get passed along to end consumers.

“Bottom line: More CPI inflation in the pipeline,” Allianz chief economic adviser Mohamed El-Erian said on Twitter, referring to the Consumer Price Index (CPI) consumer inflation measure.

Treasury Secretary Janet Yellen told AFP in an interview Wednesday that U.S. inflation rates are “not acceptable” and she is “concerned,” but insisted the health of the U.S. economy remains sound.

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Tom Ozimek has a broad background in journalism, deposit insurance, marketing and communications, and adult education. The best writing advice he’s ever heard is from Roy Peter Clark: ‘Hit your target’ and ‘leave the best for last.’