By CCN.com: Charlie Munger, a 95-year-old billionaire investor and Warren Buffett’s partner at Berkshire Hathaway, expressed concern over the rate at which money is printed by democratic governments. Ironically, Munger, a skeptic of bitcoin, may have accidentally pointed out the merits of the dominant cryptocurrency.
Speaking to CNBC’s Becky Quick alongside Warren Buffett, Munger said that he is concerned by the ability of a democracy to print as much money needed to address immediate problems.
While such a monetary policy may be sustainable for a leading economy like the U.S. if done in a strictly controlled manner, Munger suggested that in the end, if the rate at which new money is printed spirals out of control, it could lead an economy to replicate the financial turmoil in Venezuela.
In 2018, Venezuela saw its national currency – the bolivar – lose nearly all of its value as hyperinflation hit 80,000 percent, according to Steve Hanke, a professor of applied economics at The Johns Hopkins University.
Hanke wrote on a column:
Venezuela’s exchange rate regime provides no discipline. It only produces instability, poverty, and the world’s highest inflation rate for 2018. Indeed, Venezuela’s annual inflation rate at the end of 2018 was 80,000%.
Although Munger acknowledged that the U.S. is quite far away from facing a situation anywhere near to that of Venezuela, the legendary investor noted that it is concerning to think that a democracy considers printing of cash as a solution to all problems.
“I am so afraid of a democracy getting the idea that you can just print money to solve all problems. Eventually I know that will fail. You don’t have to raise taxes, you just print. In the end, if you end up printing too much, you end up like Venezuela,” Munger said.
Charlier Munger, like his pal Warren Buffett, is a harsh skeptic of bitcoin. He previously described the cryptocurrency as worthless, artificial gold. He also called bitcoin a “turd” and trading cryptocurrencies as “just dementia,” as CCN.com reported.
Somewhat ironically, Munger’s concern about the potential of hyperinflation and the tendency of a democracy to lean in favor of printing money as a go-to method to address financial issues is the core problem bitcoin was created to solve in 2009.
As a decentralized currency based on an uncensorable blockchain network, bitcoin cannot be controlled, altered, and censored by a central entity. As such, the fixed supply of bitcoin of 21 million BTC cannot be changed, which ultimately makes the asset a deflationary currency.
With a decentralized asset like bitcoin, the fear of hyperinflation or a centralized group of individuals adjusting the rate at which BTC is generated is non-existent.
The decentralized nature of bitcoin has been the main appeal of the cryptocurrency in the past decade and the key characteristic of the asset that enabled it to garner a $100 billion market capitalization.
A working paper published by the Bank of Finland read:
“Bitcoin is not regulated. It cannot be regulated. There is no need to regulate it because as a system it is committed to the protocol as is and the transaction fees it charges the users are determined by the users independently of the miners’ efforts. Bitcoin’s design as an economic system is revolutionary and therefore would merit an economist’s attention and scrutiny even if it had not been functional. Its apparent functionality and usefulness should further encourage economists to study this marvelous structure.”
If bitcoin and reserve currencies co-exist over the long run, which is highly likely given the switch in the stance of governments like the U.S., Japan, and South Korea to regulate the cryptocurrency sector rather than outright ban it, bitcoin could continue to serve as a viable alternative to fiat currencies.
Just don’t expect Charlie Munger to admit it.
Last modified: March 4, 2021 2:44 PM