How to Identify and Forewarn the Next Financial Crisis?

Okay, buddy, regarding "how to spot the next financial crisis," it's actually quite an esoteric matter, much harder than weather forecasting. If someone could predict it every time, they'd already be the richest person in the world. However, while we can't precisely predict "which day" it will erupt, we can, like experienced captains, observe the wind direction and dark clouds to sense that "something big is coming."

Below, I'll explain in plain language what signs indicate we should be more vigilant.

I. Sky-High Debt: "Borrowing feels good in the moment, but repayment is a nightmare"

This is the most crucial indicator. You can imagine the entire economy as a large family.

• Are all family members (governments, businesses, individuals) borrowing money like crazy?
  • Government: Are national debt issuances repeatedly hitting new highs? Are deficits frighteningly large? Governments borrow money for infrastructure and welfare, but if they borrow too much, beyond their tax capacity, things get precarious.
  • Corporations: Are they all borrowing to expand and buy back shares, instead of using their own earnings? Many companies appear prosperous, but a look at their financial reports reveals ridiculously high debt ratios. This kind of "bloated prosperity" is the most dangerous.
  • Individuals: Look around you, are many people using various "loans" to buy homes, cars, and consume? Is maxing out credit cards and being entangled in online loans becoming increasingly common?

When everyone believes that "borrowing is a skill," the risks in the entire system accumulate. As soon as the economy slows down slightly, or interest rates rise, a large number of people will be unable to repay their debts, leading to a domino effect.

II. Asset Price Bubbles: "Everything is rising, except wages"

You've certainly experienced this.

• Housing Prices: Are housing prices rising beyond the reach of ordinary people's income levels? Is the rent-to-price ratio (housing price / annual rent) pitifully low? If it takes 100 years for a house to pay for itself through rent, its price clearly has a bubble.
• Stock Market: Is the stock market having a "party" every day? Can any junk company's stock price skyrocket just by touching on a hot concept (like P2P in the past, or AI now)? When "stock market gurus" are everywhere, and even grandmas at the wet market are discussing stocks, that's often when the bubble is at its largest.
• Other Assets: For example, cryptocurrencies, art, or even certain luxury watches, whose prices surge irrationally in a short period.

The essence of a bubble is "pass the parcel" (or "hot potato"); everyone believes they won't be the last one holding the bag. But the music always stops eventually, and whoever is left holding the flower at that point will be unlucky.

III. Central Bank Policy Shift: "The Tap is Tightened"

Central banks (like our People's Bank of China, or the US Federal Reserve) are like someone controlling the main "money" tap.

• Long-term Easing (Low Interest Rates): For the past decade or so, most of the world has been in a low-interest rate environment, making borrowing costs very low. This encouraged the first point (crazy borrowing) and the second point (asset bubbles) mentioned above.
• Sudden Rate Hikes (Tightening the Tap): When inflation (rising prices) becomes too severe, central banks have no choice but to "raise interest rates," making borrowing more expensive. This immediately "cripples" many businesses and individuals who relied on cheap money. Unable to repay their debts, they are forced to sell off assets (houses, stocks), leading to a sharp drop in asset prices, and a crisis may erupt.

Therefore, pay close attention to the actions of the world's largest central bank, the Federal Reserve. When it raises interest rates, the whole world trembles.

IV. Excessive Wealth Gap: "The rich get richer, the poor get poorer"

This might sound a bit sociological, but it's actually an important economic indicator.

When wealth becomes increasingly concentrated in the hands of a few, it means that the consumption power of the majority cannot keep up. Who will buy the goods produced by factories? The rich have already bought what they need, and the poor want to buy but have no money. This ultimately leads to insufficient consumer demand across society, businesses fail to make profits, and are forced to lay off workers and cut salaries, plunging the economy into a vicious cycle.

What Should Ordinary People Do?

I've said all this not to make you anxious every day, but to keep you informed, so you don't get swept onto the beach when the waves are highest.

1. Reduce your own debt: Don't borrow more money than you can repay. Especially when interest rates are low, remember that they might rise in the future.
2. Don't be the "last one holding the bag": When the price of something has risen to a point where even you feel it's "absurd," don't touch it. Whether it's real estate or stocks.
3. Forced Savings and Cash is King: Keep a certain amount of cash or easily liquidable assets (like money market funds) on hand. When a crisis hits, asset prices become very cheap, and only those with cash have the "qualification to buy at the bottom."
4. Diversify Investments: The old saying "Don't put all your eggs in one basket" is always true. Allocate a bit to gold, savings, and assets in different countries and industries to effectively resist risk.
5. Improve Yourself: When the economy is good, even pigs can fly; when the economy is bad, only truly capable people can thrive. Continuously learn and improve your professional skills; this is more important than anything else.

In short: Be fearful when others are greedy, and greedy when others are fearful. Observe these signals mentioned above; when everyone is in a frenzy, you remain clear-headed; when a crisis truly arrives and there's widespread suffering, as long as you are well-prepared, that will actually be your opportunity to change your life.