Munger Says Prepare for Harder World as Buying Power Slides

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Charles Munger, vice chairman of Berkshire Hathaway Inc.

Charles Munger, vice chairman of Berkshire Hathaway Inc.

Photographer: Jonathan Alcorn/Bloomberg

Charles Munger, who became a billionaire while helping Warren Buffett build Berkshire Hathaway Inc., predicted it’s going to get tougher for consumers to maintain their standard of living in coming decades.

“We should all be prepared for adjusting to a world that is harder,” Munger, 91, said Wednesday at an event in Los Angeles, in response to a question about the increase in the size of the Federal Reserve’s balance sheet since the 2008 financial crisis. “You can count on the purchasing power of money to go down over time. And you can almost count that you’ll have more trouble in the next 50 years than the last.”

The cost of living in the U.S. excluding food and fuel rose more than forecast in February, climbing 1.7 percent from a year earlier. The Fed’s preferred measure of inflation expectations - - the five-year, five-year forward break-even rate -- now projects consumer prices will increase at a 1.91 percent rate starting in 2020. That’s up from 1.75 percent on Jan. 30.

Munger spoke at the annual meeting for Daily Journal Corp., a Los Angeles-based newspaper publisher where he serves as chairman. After inflation, investors in common stocks averaged “unbelievably good” returns over the last five decades, he said.

Best Times

“Somebody my age has lived through the best and easiest period that ever happened in the history of the world -- the lowest death rates, the highest investment production, biggest increases in most people’s standards of living,” Munger said. “If you’re unhappy with what you’ve had over the last 50 years, you have an unfortunate misappraisal of life.”

Recalling an era when people paid 5 cents for a cup of coffee and new automobiles cost $600, he said the declining value of money in past decades didn’t turn out to be as severe as he had anticipated.

The comments echo remarks that Buffett made last month in his annual letter to Berkshire shareholders. He pointed out how investors in stocks had far outperformed those who stuck with currency-related investments like Treasuries over the last 50 years. A similar outcome is likely to be repeated in the next century, Buffett wrote.

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