Munger: Basically, It's Over

Eddie Braverman's picture
Rank: The Pro | 21,104

For those who haven't read it yet, Warren Buffet's right-hand man Charlie Munger had plenty to say about the state of the U.S. in his article entitled, "Basically, It's Over". In broad strokes (through a clever parable), Munger details our former greatness and our coming demise by the year 2012. Oh, and he calls Goldman Sachs a bucket shop (haha).

It is worth reading through to the end, even if it leaves you feeling a little queasy about America's prospects. Many of you will dismiss it out of hand (as Munger predicts in the parable) out of either fear or apathy. But it's hard to argue with the credit pressure the U.S. is under right now. It certainly could completely unravel over the next two years. All it would take is one major creditor to say, "No thanks, I think I'll pass this time." for the house of cards to crumble.

Unfortunately, Munger wasn't long on solutions to the problem. I suspect this is because he doesn't believe that there are any solutions, and that the coming demise is now inevitable. Coincidentally, I just finished watching an excellent BBC documentary called Empire of the Seas. It detailed how Great Britain went from complete global dominance to relative obscurity in less than 200 years. So don't think it can't happen to us.

I'd love to hear what, if anything, you guys are doing to prepare for the nasty eventuality outlined in Munger's article. Are you putting exit plans in place? Doing nothing? Hoarding cash?

Comments (15)

Feb 24, 2010

Munger's dead-on about how screwed up the US is, how complacent and entitled the average citizenry is, and how morally corrupt and mentally bankrupt gov't has become. People seem to have forgotten that democracy has never accomplished anything good in history; everything from the Roman Empire to the Constitution to Civil Rights was built by a few men who knew what was needed, rather than by a poll of the lowest common denominator

As for me, I've already left the US, and am working on building up my network in developing economies

Feb 24, 2010

There will always be top dogs. Just because the US as a whole isn't doing great, doesn't mean there still will not be some ballers.

Feb 24, 2010

This is why i'm doing my MBA in Europe and planning on working either there or in Asia afterwards. This is also why my whole portfolio is short US right now. Short the Dow, short the S&P, short Nasdaq, short crude, short the banks, long volatility, long gold, and long China.

It's funny that I see the markets keep on popping up and there's so much blind optimism. Really? If you sit down and look at the way the US economy is, what is there to be optimistic about? The US is basically forcing other countries, especially China, to help them print free money. Well the party's gonna be over at some point and when the creditors take away the fruit punch bowl at the out...the US economy will spazz out.

And Munger doesn't mention solutions because at this point, it's pretty much too late. The US has racked up so much debt. The choices are: die from thirst or drink from the poisoned well...and they're just drinking from that poisoned well.

I'm not sure if 2012 is too soon...but I definitely see it coming. I mean, I'm not worried about the US turning into some 3rd world country. It's just that the economic development and boom cycle is done here.

Feb 24, 2010

I agree wholeheartedly with everything said in this topic, but the article I find a bit irrelevant and incoherent. My biggest issue is with this:

"the extreme prosperity of Basicland had created a peculiar outcome: As their affluence and leisure time grew, Basicland's citizens more and more whiled away their time in the excitement of casino gambling."

This by extension implies, that any country/nation, that reaches a certain level of wealth, will indulge in gambling and bring around its own demise. That seems a bit far-fetched.

By no means do I question the sad state US is in and its bleak prospects for the future (though in my opinion this also goes for the rest of western developed nations, China, India, Russia...). But his logic and reasoning is fuzzy, to say the least.

Best Response
Feb 24, 2010

I think claiming that there aren't solutions is a cop-out. There are solutions, they just aren't what people want to talk about, or what our government has the courage to do. Here are just a few ideas for what we should be doing, or at least talking about (in back rooms please):

Fix healthcare; don't just past socialist bills, address the underlying cost structure. Specific steps that should be taken include:
-Bringing market prices to medicine: today, no doctors or patients know what a procedure or drug costs, and can't act accordingly. Fixing a person isn't that different from fixing a car, yet you mechanic can tell you what a new transmission will cost, even if your insurance covers it

Fix entitlements: social security + medicare will end the US, because they both have massive unfunded liabilities (dating from their inception), have been used for decades to plug other holes in the budget, and have cost structures that don't reflect reality. Specifically, we should:
-Raise the retirement age to reflect longer life-expectancies and the generational shift; I'd favour something well north of 70
-Move medicare to a market-based system
-Eliminate the income cap on social security contributions - yes, doing so is unfair, but so is the whole tax code. we can't end social security without causing massive distortionary effects, intergenerational strife, and bankrupting the government in one or another

Address China's violation of free trade norms (protectionism, IP violations, currency manipulation), possibly by reverting to autarky.

Fix the decision-making body, specifically:
-Make gerrymandering illegal
-change the FPTP system to discourage partisanship
-modify Senate rules to require that all other legislation be halted while a filibuster is in place, and require floor debate to uphold a filibuster

Transition the US off of energy dependency, which sends way too much money to our enemies, and which EM demand at the margin will exponentially raise the price of very shortly. specifically:
-massively raise natural resource taxes, specifically gas taxes, to fund infrastructure improvements (railroads, telecom, etc) and self-serving environmental policies

Mandated national service (at market wages). We're not Israel, and no longer need a draft, but the positive externalities that result from military service, if combined with the direct benefits of social integration, make sense

Make unionization illegal for gov't employees

Again, just some ideas.

Feb 24, 2010

Drexalum, great points. I just gave you a silver banana. Not to get on your nuts, but best post I've seen all week.

Feb 24, 2010

Agree with what drexalum said. I don't like munger's post though; whilst I'm sure it's comfortable up on his high horse this ridiculous historical parallel commits the typical fallacy of portraying the past as being great and now as being awful, which has been done every decade since forever. Conveniently he omits mention of 'basicland's use of slave labour to fund all these exports that kept the economy growing at 3% for so long.

The US faces serious problems but the idea that people were better off (on average) in the 50s or 60s just doesn't stand up to any realistic quantitative analysis.

Feb 24, 2010

Ummmm isn't Munger and Buffet one of those citizens who "more and more whiled away their time in the excitement of casino gambling"?

Funny, when you 'get yours' from the system, you can finally start to criticise it.

Feb 24, 2010

I agree with everything in terms of what is wrong with America. I still say its the greatest nation on earth though.

Feb 24, 2010


JJPP18, definitely fair to say that people have a tendency to think back to the good old days. It's a basic tendency for the brain to favour positive memories. America still has some amazing strengths - some of the greatest entrepreneurs in the world, generally sound infrastructure, well-established rule of law, massive natural resource endowments, the most outstanding universities in the world, massive stores of human capital, and on and on. Unfortunately, I don't think that is sufficient to overcome the challenges that we face.


Ummmm wasnt Munger and Buffet one of those citizens who "more and more whiled away their time in the excitement of casino gambling"?

Munger and Buffett would reply (and probably rightly so) that they were not engaged in gambling; they were allocating capital to real businesses that drive the economy, and doing so with a substantial margin of safety, as Dodd & Graham taught them to.

Feb 24, 2010

yet Buffet is 'all in on America' with his purchase of Burlington Northern...
Hopefully Munger's piece is more of a call to action than a serious doomsday scenario.

Feb 24, 2010

help me out here:
Benfranklin Leekwanyou Vokker
what's that supposed to mean? his "good father" - who is this and what is the name supposed to mean? vokker? as in fucker? leekwanyou vokker = like when you fuck her? i don't know bout you guys but this one's really intriguing :P

"... then, lobbest thou thy Holy Hand Grenade of Antioch towards thy foe, who, being naughty in My sight, shall snuff it."

Feb 24, 2010

Ben Bernanke and Paul Volker I'm assuming ?

Feb 24, 2010

this is pretty cool. college freshman here.

brb, switching major to nursing

Feb 24, 2010