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quantitative easing a term that will likely put you to sleep but this term is going to defy the 21st century and will likely have huge implications on our lives health and economy in the coming years how does qe affect all of this in today's video we answer this question with the help of legendary investor charlie munger quantitative easing has grown to be the most important tool for the united states federal reserve and other central banks around the world without putting you to sleep it's essentially the practice of increasing the supply of money by buying government bonds and other securities it essentially boils down to printing money to prop up the economy we saw this with the latest stimulus nearly everyone in the states got a twelve hundred dollar check businesses got ppp loans and numerous other handouts were provided and funded not by increasing taxes but rather by printing the money out you might be asking yourself why the hell do we even pay taxes in the first place if the government can simply print themselves out of problems and it's a fair question considering the events of the last 15 years we are told over and over again that if central banks increase the money supply too much it creates inflation and in the worst case if the fed increases inflation and there happens to be no economic growth we get a situation called stagflation this has been proven over and over again by various countries most recently lebanon venezuela and iran where massive inflation causes your money to essentially lose its value almost daily in the united states and around the world despite a record amount of unbankable money printing starting way back in the 2007 recession central banks and various governments have managed to print themselves out of problems while keeping inflation low take a look at this chart which shows the billions the fed has printed versus the annual inflation rate as we can see things look rosy everyone is happy and the stock market is booming here is charlie munger's opinion on the matter so uh schuler coolin bachelor's degree 1995 uh is going to ask about political economy so two different questions what do you think are the dominations of quantitative easing and large fiscal deficit and where are they going to lead us well there i've got a very simple answer and that is it's one of the most interesting questions anybody could ask and we're in very uncharted waters we have nobody has gotten by with the kind of money printing we're doing now for a very extended period without some trouble and i i think we're we're very near the edge of playing with fire it is remarkable how much we've expanded the money supply how low interest rates are and how little initial response there's been a remarkable not too strong a word astounding would be more i like it i will i will let you choose the adjective charlie it's unbelievably extreme some european government borrowed money recently for some tiny little fraction of one percent for a hundred years oh now that is weird some kind of a lunatic would loan money to a european government for a hundred years less than one percent remember charlie is about to be 97 years old he's warren buffett's right-hand man and is undoubtedly one of the smartest investors of all time as you can see charlie's reaction to the question is strong he almost jolts off his chair when the professor who is interviewing him uses remarkable as the adjective to describe this recent trend of money printing monger is quick to point out that this phenomenon is absurd and unlikely to continue you must also note that low interest rates are a result of qe which also has a massive influence on stock prices the interest rate right now is historically low and has been low for the past 20 years interest is gravity in the world of finance and because of this free money stock prices especially those in the tech world have soared take a listen to the next question pertaining to a nasdaq bubble uh so david whitner who is an associate degree in 1975 asked is it nasdaq in a bubble and will it blow up and do we know when is it nasdaq in a bubble well i i nobody knows when bubbles are going to blow up but just because it's nasdaq doesn't mean it'll have another run like this one very quickly again this has been unbelievable again there's never been anything quite like it if you stop to think about it think what apple is worth compared to john d rockefeller's old oil empire it's been the most dramatic thing that's almost ever happened in the entire world history of finance yes mr monger as of the making of this video apple is worth 2.17 trillion dollars while john d rockefeller standard oil a company so big and powerful it had to be split up by the us government was only worth one trillion during its peak adjusted for inflation where this is headed next nobody knows the next subject monger gets into is china while many billionaires and even millionaires are sensitive criticizing or even promoting china monger is brutally honest in his opinion regarding this massive communist state he says some things are quite shocking in this next clip the other thing that's really remarkable the last 30 years of china they have had real economic growth at a rate for 30 years that no big country has ever had before in the history of the world and who did that a bunch of communist chinese now that is really remarkable so so if you're studying finance you've got a lot of strange things to account for so bob regental who said a phd in 1979 from marine corps clubhearing asked so how would you rate investing in china with the current political tensions or you invested in china through the ownership of american companies that do business in china well i'm of course i'm invested partly in american companies that do business in china including coca-cola but i'm also invested very significantly in china through the uh the management of lilu whom the monger family backed heavily when he formed a little private equity firm to invest in china and he has had a very successful record and that's made me follow very closely the leading companies in china and of course i've had very successful experience there and does that say that sort of the politics don't matter so much or yeah that's a very interesting observation what that shows is exactly right who would have guessed that a bunch of communist chinese run by one party would have the best economic record the world has ever seen of course it's extreme and i think it proves that you know it doesn't we americans would like to think that our free expression and allowing all kinds of opinion and all kinds of criticism of the government is totally essential part of the economy and what the chinese have proved is you can have a screamingly successful economy with a fairly controlling government all the government has to do is is a is created a lot of smithy and count smithy and capitalism if you do that having a sort of a controlling one-party government doesn't matter that's not a fashionable thing to say but i think it's true well there you go you heard it here first charlie munger is a communist i'm of course kidding but it's very interesting to hear him say that considering that charlie munger is part of the greatest generation and is relatively open about his political beliefs as a huge republican donor although he does consider himself not a normal republican advocating for things like single-payer medicine it's surprising to hear him say that communism in its right form does allow for massive economic success something china has proved to be correct over the last 20 years we end the interview with his thoughts regarding future stock returns and just like most of the billionaires that have been featured in this channel of last year they all state the same thing here is his answer so uh my next set of questions are more on the finance side so paul goodson who was a bachelor's degree in science in 1975 asked do you expect the next 10 years to have lower returns in the equity markets than the last 10.
it doesn't give us an idea why the answer is yes and could you give us a hint as to why that might happen yes because so many people are in it and the frenzy is so great and the systems of management the reward systems are so foolish that that i don't think it's going to work at all i don't think i i think the returns will go down yes in real terms the returns will be lower thank you guys for watching please make sure you hit that subscribe button if you enjoyed and don't forget to leave a comment regarding charlie's thoughts on china
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