Charlie Munger never sugarcoated things, and when someone asked him about inflation and interest rates at the 2022 Daily Journal Corporation (DJCO) annual meeting, he certainly wasn't about to start.

The longtime business partner of Warren Buffett and vice chairman of Berkshire Hathaway (BRK) had some thoughts about where all this money printing might lead us. Spoiler alert: he wasn't exactly optimistic.

We're In Uncharted Waters

A mechanical engineer from Germany posed what Munger called "a very intelligent question and a very difficult question": could we see interest rates spike like they did between 1950 and 1980?

Munger's answer cut straight to the heart of the matter. The scale of money printing by the U.S., Japan, and European nations is basically without precedent. "When you print money on the scale that modern nations are printing it, we're getting into new territory," he explained.

Here's where it gets interesting. Japan has printed staggering amounts of money without triggering extreme inflation or economic collapse. But Munger wasn't buying the idea that America could simply copy that playbook.

"If you try and print too much money, it eventually causes terrible trouble," he said plainly. "And we are closer to terrible trouble than we've been in the past, but it may still be a long way off."

Still, he added a note of hope: "I hope to God the United States has a similar happy outcome" to Japan's experience. But then came the caveat. "The Japanese are better adapted for stasis than we are," describing them as a "duty-filled, civilized bunch of people."

Why America Isn't Japan

Munger pointed to something most economists dance around: governing a diverse country is fundamentally harder than governing a culturally unified one. "It's way harder to run a country which is not monoethnic," he said, citing research from a Harvard professor.

Japan's cultural cohesion and strong national identity make it easier for the population to weather economic challenges together. America? That's a different story.

The Ghost Of Paul Volcker

When asked if today's inflation mirrors the 1970s, Munger brought up the nuclear option: Paul Volcker's brutal interest rate hikes. "The government was paying 15% on its bonds. That was a horrible recession," Munger recalled. "It lasted a long time, caused a lot of agony and I certainly hope we're not going there again."

But here's the kicker: Munger didn't think modern politicians have the backbone for that kind of medicine. "I would not predict that our modern politicians will be as willing to permit a new Volcker to get that tough with the economy," he said.

And then came the truly ominous part: "You may wish you had a Volcker-style recession instead of what you're going to get. The troubles that come to us could be worse and harder to fix."

Think about that for a moment. The 1970s recession was so painful that people who lived through it still wince at the memory. And Munger was suggesting we might look back on that era with nostalgia.

The Temptation Is Too Strong

Why do governments keep printing money if it's so dangerous? Munger laid out the political logic with brutal clarity.

"You have a bunch of interest-bearing debts and you pay them off with checking accounts which you're no longer paying interest," he explained. "Think of how seductive that is for a bunch of legislators. And of course, when things get that seductive, they're likely to be overused."

It's the equivalent of discovering you can pay off your credit card by writing checks that never clear. What could go wrong?

So What Should You Actually Do?

When asked how regular investors should protect themselves against inflation, Munger didn't recommend gold, crypto, or complicated hedging strategies. He just listed what his own family owns.

Berkshire Hathaway stock. Costco (COST) stock. Some Chinese equities managed by noted investor and Himalaya Capital founder Li Lu. A bit of Daily Journal stock. And "a bunch of apartment houses."

Nothing fancy. Just quality assets held for the long term.

He also took a shot at conventional diversification wisdom. "Very few people have enough brains to get 20 good investments," he said. "To ask for 20 is really asking for egg in your beer."

Translation: Most investors would be better off with a concentrated portfolio of things they actually understand than a sprawling collection of mediocre bets.

Munger's message was characteristically blunt. We're in unprecedented territory with money printing. The political incentives point toward more printing, not less. And when trouble finally arrives, it might make the 1970s look pleasant by comparison. His advice? Own good businesses and real assets, and hope for the best.