The Next Financial Crisis Is Coming: An Interview With Andrei Polgar

Today’s post is an interview with Andrei Polgar about spotting the next financial crisis. I have previously written my own thoughts about when the next financial crisis is coming, but as opposed to me Andrei is an actual expert on the subject. He has just written a 421-page book about spotting financial storms, and I really like his way of thinking and preparing for the uncertain future.

Without further ado, let’s dive into the interview.

Q: What are the biggest signs that a financial crisis is coming soon?

Andrei: “First and foremost, there’s the cyclical dimension of it. If humans were angels, our economy would continuously go up in a linear, predictable manner. But since we’re not, we have the business cycle or in other words, periods when people become overly enthusiastic (booms) and periods when they become excessively frightened (busts). Every now and then, we unfortunately have bust periods and it’s worth noting that only one time has there been more time between recessions as there is now. In other words, if you will, we’re “due” a recession from a cyclical standpoint.

Secondly and perhaps most importantly, there are just too many anomalies in the system and, a system numbed by artificially low interest rates and financial stimulus. Some would call it economic cocaine. After the dot-com bubble, interest rates were lowered from 6.5% all the way to 1% but from there, they at least went up to 5.25% prior to the Great Recession of 2007-2008 (as a result of which they had to be lowered to zero and even more so, money had to be pumped directly into the system to the tune of $85 billion per MONTH). Nowadays, interest rates went up anemically in the US despite 10+ years passing since the previous crisis and let’s not even talk about the European Union and Japan, where they even ventured into negative territory. Again, anomaly after anomaly, from over $1 TRILLION printed each year (remarkable in light of the fact that the monetary base, from 1913 until 2007-2008 had only grown to $850 billion) to an economy that’s hooked on economic cocaine. Sooner than later, there will be a price to say and this line of thought is dictated by common sense more so than economics.”

Q: How can people become better at spotting financial storms in general?

Andrei: “First and foremost, they have to willfully venture outside their bubble.

It’s amazing how the average person is so caught up in day-to-day activities that the mere idea of taking a step back and looking at the big picture seems downright ludicrous. I get that we all have occupations, families and what not. But if we can find time to binge watch a series on Netflix, we owe it to ourselves to dedicate even a fraction of that time to educating ourselves about the economic dimension of our lives. I’m not unreasonable and in fact, my “one minute” concept around which the YouTube channel I’m (in)famous for is all about giving people a good bang for their time (not buck) and teaching them economics without it putting much of a burden on their schedule. But you owe it to yourself to at least do something tangible when it comes to understanding the financial dimension of the world we live in. Instead of watching a movie each week, watch only three per month and spend time you’d normally allocate to movie #4 watching a documentary or reading a book. Again, nothing Earth-shattering.

Next, they need to keep their ear to the ground when it comes to current events.

Am I saying you should spend every waking moment watching cable TV? Nope! I am however saying that spending 5 minutes each day catching up on the news is a more than fair goal.

Third… well, it isn’t even necessary to go there. If you manage to find the right balance between becoming more educated (precisely the thing I want to help people do with my book) and staying informed, words can’t begin to describe in how much better shape than the average individual you are.”

Q: What will be the largest negative consequences of the next financial crisis?

Andrei: “Well, each crash comes with several obvious consequences: bankruptcies, job loss, you name it.

However, there’s one in particular that I consider the most dramatic, by far: confidence loss. Up until this point, it has been perceived that governments and central banks can keep things under control. In other words, disaster strikes and they save the day, that has been the narrative thus far. A reality-redefining negative consequence would be the altering of that narrative or to put it differently, reaching the point when the market no longer has confidence in the state’s ability to
make problems go away.”

Q: What are you most scared about in terms of the way our society and financial institutions are set up today?

Andrei: “People like to think that the various systems which constitute society as we know it are extremely robust. For example, if you live in a developed democratic country, you’re tempted to believe that the system is foolproof. After all, you have various institutions which keep one another in check (a parliament that passes laws, a government that makes things happen, a legal system that protects you), so what could possibly go wrong?

Well… a lot, actually.

You see, we’re right back to the word that’s always on my mind: confidence.

Society actually hangs on by a far thinner thread than people realize and that thread is represented by confidence. In the absence of confidence, institutions we once considered indestructible safety nets will crumble right before our very eyes.”

Q: How does your opinion regarding future financial crises differ from other financial experts, and why?

Andrei: “As an economist who specializes in exotic and highly volatile assets like domain names and cryptocurrencies, market corrections or even crashes that spook the average economist don’t exactly keep me up at night. So personally, I’m not afraid of a 60% stock or real estate market crash, for example. Or to be more precise, I’m not afraid if it will come to just that.

I am however terrified by a deflationary event like the previously mentioned stock/real estate market crashes that are followed by the market’s rejection of status quo financial medicine. Like after each crisis, the state and most likely will intervene. The average financial crisis is painful but to me, not terrifying. There’s pain, the state intervenes and the day is saved. Again, that tends to be the common narrative. However, every now and then, a run-of-the-mill market crash turns into a “big reset” because, well… the market says no. No to the solutions proposed to states and central banks and broadly
speaking, it simply says no to governments and central banks in general. This leads to a dramatic re-alignment of pretty much everything the financial system revolves around and that, my friends, is what keeps me up at night, especially since I know that the average individual tends to be on the losing end of that deal.”

Q: How do you invest your money when you believe a financial crisis is inevitable (if at all)?

Andrei: “With humility!

The humility it takes to understand that predicting the future is a fool’s game. I’m an economist who thinks about these things day in and day out. But at the same time, I have the humility it takes to understand that the next crash and/or big reset might even take me by surprise as well. As such, unlike many of my peers and as strange as it may seem, not only do I embrace my “incompetence” when it comes to predicting the future, I actually make it a core element of my strategy.

Through The Age of Anomaly, I make an effort not to spoon-feed people conclusions and strategies. Instead, I give them all the tools they could possibly need (from historic context-related ones to practical tips) to make their own decisions and create PERSONALIZED strategies. It’s not my goal to become anyone’s guru, I actually want the opposite, I want people to think for themselves and through my work, I empower them to do just that.”

Q: How should normal people change their behavior to prepare for “The Big Reset” (i.e. what can we do to minimize the negative impact on our lives when a financial storm comes)?

Andrei: “As is frequently the case in life, fortune favors the prepared mind!

If you’ve been living in a bubble and all of a sudden have to deal with a financial calamity, the best economist in the world will be able to do little for you. If however you embrace and internalize a few simple habits, you’ll eventually become resilient enough to withstand pretty much anything life throws at you. It’s important to note that in my book, I’ve devoted just as much energy to explaining how to become more resilient in general as I have to explaining how to become better at
spotting financial storms.

The key to a sustainable way of living lies precisely around your willingness to make small changes NOW. Now, when nobody’s in panic mode. Now, when you don’t hear about any financial tsunamis on the news. Now, when some of your friends or family members might even make fun of you for daring to think about the next crash and how you’re positioning
yourself. Exiting your comfort zone may seem unnatural at first but I promise you that if you give it your best effort, you’ll thank me in the long run.”

Q: In your book, you say that “we are all doomed”, but that we shouldn’t worry too much about it. Why is that?

Andrei: “Simple: because excessive worrying won’t make your problems go away and even more so, it will impair your ability to make choices in a lucid manner.
Yes, there will inevitably be a big reset and no, it won’t be the least bit pleasant. Even for those who are responsible and prepare, I can pretty much guarantee it will be anything but a walk in the park. But that’s just the way it is, so why not be constructive about it? Instead of panicking, why not learn what happened in similar situations in the past (the context can and will change, human nature… much less so), what conclusions can be drawn, what you can do as of today and how the best way to go about it all is? Through my book, I’ve made it my #1 goal to do just that!”

That’s it for the interview with Andrei. I hope you liked his thoughts and ideas as much as I did. I believe that people pursuing FIRE are already somewhat prepared for the next financial crisis, but it was certainly a wake-up call for me in how I think about and prepare for a future crisis. If you want to read more, make sure to check out his latest book.