Top 10 Economic Predictions for the Next 10 Years
From the national debt and housing market to climate change and military spending, here are the top 10 predictions that may affect the United States and your own personal economy over the next decade.
Pandemic Recovery: V, U, or L?
In just a few months, the COVID-19 pandemic decimated the U.S. economy. In the first quarter of 2020, growth declined by 5%. In April, retail sales plummeted 16.4% as governors closed nonessential businesses. Furloughed workers sent the number of unemployed to 23 million that month. As of June, the number of unemployed has declined to 17.8 million.
The Congressional Budget Office predicts a modified U-shaped recovery.
It's possible that the second quarter could be worse. The Congressional Budget Office predicts the economy will decline by 38%. The third quarter will improve, but not enough to make up for earlier losses. Effects will linger until the fourth quarter 2021, with slightly lower economic output and higher unemployment.
The Federal Debt Will Increase
On June 10, 2020, the U.S. debt exceeded $26 trillion. The COVID-19 pandemic added $2 trillion to the debt in the first quarter of 2020. That's from the CARES Act and a reduction in tax revenues.
The U.S. public debt-to-GDP ratio is 110%.
The debt level is not sustainable if interest rates were to rise. That's unlikely as long as the U.S. economy remains in recession. The Federal Reserve will keep interest rates low to spur growth.
Higher interest rates would increase the interest payments on the debt. It’s above the 77% tipping point recommended by the International Monetary Fund.
Trump promised to reduce the debt. But so far, his policies could increase it by $5.6 trillion. Supply-side economics says that lowering business taxes frees up funds to hire more workers. But it doesn't work when the maximum tax rate is below 50%, according to the Laffer Curve. Instead, it just adds to the debt.
How It Affects You
Disagreements over how to reduce the debt may translate into a debt crisis if the debt ceiling needs to be raised. In the long term, balancing the budget means spending cuts since Trump has cut taxes. Social Security pays for itself, and Medicare partially does, at least for now.
As Washington wrestles with the best way to address the debt, uncertainty arises over tax rates, benefits, and federal programs. Businesses react to this uncertainty by hoarding cash, hiring temporary instead of full-time workers, and delaying major investments.
Extreme Weather Could Cause Economic Crisis
A study published in the October 2018 edition of ScienceAdvances predicted that extreme weather in North America will increase by 50% by 2100. It will cost the U.S. government $112 billion per year, according to a report by the U.S. Government Accountability Office.
In March 2019, the Federal Reserve warned that climate change could threaten the financial system. Extreme weather caused by climate change is forcing farms, utilities, and other companies to declare bankruptcy. As those loans go under, it will damage banks' balance sheets just like subprime mortgages did during the financial crisis.
Munich Re, the world's largest reinsurance firm, blamed global warming for $24 billion of losses in the California wildfires. It warned that insurance firms will have to raise premiums to cover rising costs from extreme weather. That could make insurance too expensive for most people.
According to Cornucopius Climate Change Service, October 2019 was the hottest October on record by a small margin. And temperatures are expected to increase even more, between 2 and 4 degrees Fahrenheit over the next few decades. Warmer summers mean more destructive wildfires. Trees weakened by drought and pests have increased the intensity of these fires. The dry western Plains region has moved 140 miles eastward. As a result, farmers used to growing corn will have to switch to hardier wheat.
A shorter winter means that many pests, such as the pine bark beetle, are not dying off in the winter. The U.S. Forest Service estimates that 100,000 beetle-infested trees could fall daily over the next 10 years.
How It Affects You
Droughts can kill off crops and raise beef, nut, and fruit prices. Millions of asthma and allergy sufferers could pay for increased health care costs. Longer summers can lengthen the allergy season. In some areas, the pollen season is now 25 days longer than in 1995. And pollen counts may double by 2040.
Everyone could feel the effects if nothing is done. Heat waves could lead to illness and even death, as well as damaged crops and live stop, plus power outages.
Millions of people could potentially be flooded from rising sea levels, too. Rising sea levels could cause hurricanes and storms to push farther inland, and it puts stress on coral reefs, which could die off. By 2100, global sea levels could rise at least 1 foot above what they were in 2000. That alone would cost the global economy $14 trillion by 2100.
Health Care Costs Will Continue to Increase
Trump's tax plan repealed the Obamacare tax on those who don't have health insurance as of 2019. The Congressional Budget Office believes that 13 million people could drop coverage by 2027. Since most of them are healthy, it will raise costs for insurance companies. They will transmit those costs to the insured, raising health care costs.
Health care expenditures are expected to reach $6 trillion by 2027, and its share of the GDP is projected to reach 19.4% in that same year. Personal health care prices are also expected to rise an average of 2.7% per year between 2020 and 2027.
How It Affects You
Without regulation, the new policies may not provide as much coverage. People who buy them could end up paying more out of their own pockets.
As people drop insurance, they are less likely to get preventive care. Low-income families without insurance might return to using the hospital emergency room for primary care. Hospitals transfer that cost to Medicaid and insurance companies. It could make health care more expensive for everyone.
Oil and Gas Prices Will Rebound
The U.S. Energy Information Administration provides an outlook through 2050 that predicts that the production of Brent crude oil will rise to record heights by 2027 and then remain 14 million barrels per day by 2040. The price is projected to be $92.82/barrel by 2030, and $106.08/barrel by 2040. Over the next few years, the United States is expected to export more oil than it imports.
How It Affects You
Higher oil prices mean higher gas prices. In 2008, when oil prices spiked to $144 a barrel, gas prices rose to $4 a gallon. You can use oil prices to predict tomorrow's gas prices today. High gas prices can drive up the cost of food, too, which depends on the cost of transportation.
The U.S. and Chinese Economies Are Intertwined
China became the world's largest economy in 2014. As of September 2019, China's economic growth is the slowest its been since 1990. But the nation is now so large that it will continue to affect the U.S. economy much more than in the past.
In December 2019, the U.S. and China reached an agreement on Phase One of the trade deal in which China has committed to purchasing a substantial amount of U.S. goods and services in the next several years. The U.S. will keep 25% tariffs on $250 billion worth of Chinese exports and 7.5% tariffs on $120 billion of Chinese imports.
If China’s exports decline, it could buy fewer U.S. Treasurys. Since China is the second biggest purchaser of U.S. debt, as its demand for Treasurys declines, interest rates could rise.
Any changes China makes as part of its economic reform will affect the U.S. dollar's value. China has maintained a fixed peg to the dollar for its currency, the yuan. It is loosening this peg in its bid to allow the yuan to become a global currency. The nation is also modernizing China's stock markets.
How It Affects You
Slowdowns in China’s growth could impact the U.S. economy in unprecedented ways. Higher interest rates may increase the cost of loans for U.S. businesses and consumers. They may also increase the interest on the debt. The U.S. government may have to divert more funds to pay off that interest.
A slowdown in Chinese exports may also increase prices for U.S. consumers. “Made in America” means higher costs since U.S. workers get paid more for their work than those in China.
The Dollar Will Continue to Dip and Swell
The U.S. dollar value hit a two-year high in September 2019, with a value of $99.37. As of December 2019, it dropped to around $97. With the Federal Reserve having lowered interest rates, there is the chance that the dollar's value will increase.
Foreign investors may become more concerned about the U.S. debt. They fear that the United States wants the dollar to decline so that the relative value of its national debt is less. They will diversify their portfolios with more non-dollar-denominated assets, such as the euro.
How It Affects You
A weak dollar increases import prices, which contributes to inflation and increases oil and gas prices. It also lowers export prices, spurring economic growth. The dollar's value will continue to experience dips and swells, affecting everything you buy.
Inflation Will Remain Subdued
When oil prices return to a normal range, it could raise fears about hyperinflation. But the Federal Reserve is vigilant about reversing quantitative easing and raising the fed funds rate when needed.
The most important role of the Fed is managing public expectations of inflation. Once the public expects inflation, it becomes a self-fulfilling prophecy. The Fed can maintain confidence in the economy by demonstrating moderation, resulting in less extreme changes in public economic behavior. The Fed knows this is how former Fed Chair Paul Volcker ended the stagflation of the 1970s. By keeping interest rates high, he reassured the public it was committed to preventing inflation.
How It Affects You
You don't have to worry as much as you did in the past about inflation eating away at your retirement savings. Without the threat of inflation, it's also unlikely gold prices will rise above $1,500 an ounce. Gold serves as a good barometer of the health of the economy. Gold prices skyrocket when investors are worried about either inflation or future economic growth.
Housing Growth Will Be Sustainable
The Tax Cuts and Jobs Act limited the deduction on mortgage interest to the first $750,000 of the loan. Interest on home equity lines of credit can no longer be deducted. It also doubled the standard deduction, which could increase the number of people who take it. The National Association of Home Builders and the National Association of Realtors opposed this in 2017. As more taxpayers take a standard deduction, fewer may take advantage of the mortgage interest deduction.
The Fed also lowered interest rates in late 2019 and held them steady. This will make mortgages more affordable. As mortgage rates decline, housing prices may increase to offset the cost to homebuyers.
How It Affects You
The tax plan could keep a lid on housing prices. But the lower mortgage rates could inspire people to buy homes. And while many people are concerned that the real estate market is in a bubble that could lead to another collapse, Zillow reported in December 2019 that its experts believe the housing market will remain stable over the next couple of years. As long as the Fed holds rates steady, there's a chance the housing market will boom, but not bust.
The U.S. Is Involved in Fewer Ground Wars
The $23 trillion debt and sequestration mean that the United States really can't afford to wage large ground wars anymore.
In March 2019, the government increased the 2020 national security budget to $750 billion. The Department of Defense said that this increase will strengthen its competitive edge and help the military succeed by prioritizing innovation and modernization in warfighting for decades to come.
Some critics have vocalized their opinions that this spending is not appropriate, given the lessened presence of the U.S. military around the world. Budget experts say this increase will directly impact America's debt, making it greater and will take away from such key areas as health care and child care.
How It Affects You
You may feel more insecure as terrorism grows and it seems like America is doing little about it. Then there's the growing threat of cyber warfare - it's fast, difficult to grasp, far-reaching in the digital landscape, and dangerous. And the United States is working to innovate and modernize so as to be better prepared.
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U.S. Census Bureau. "Advance Monthly Sales for Retail and Food Services." Accessed June 2, 2020.
Bureau of Labor Statistics. "Employment Situation Summary," Table A. Accessed June 2, 2020.
Congressional Budget Office. "Interim Economic Projections for 2020 and 2021." Accessed June 3, 2020.
Treasury Direct. "The Debt to the Penny and Who Holds It." Accessed July 2, 2020.
House Committee on the Budget. "Issue Brief: The Devastating Consequences of the 2020 and 2021 Budget Caps." Accessed Dec. 13, 2019.
Federal Reserve Bank of St. Louis. "Federal Debt: Total Public Debt as Percent of Gross Domestic Product." Accessed July 2, 2020.
The World Bank. "Sovereign Debt and the Financial Crisis: Will This Time Be Different?" Accessed Dec. 13, 2019.
Center on Budget and Policy Priorities. "Unpacking the Trump Budget’s Tax and Spending Plans and Unrealistic Assumptions." Accessed Dec. 13, 2019.
SciencesAdvances. "Projected Changes in Persistent Extreme Summer Weather Events: The Role of Quasi-resonant Amplification." Accessed Dec. 13, 2019.
U.S. Government Accountability Office. "Climate Change: Information on Potential Economic Effects Could Help Guide Federal Efforts to Reduce Fiscal Exposure." Accessed Dec. 13, 2019.
Federal Reserve Bank of San Fransisco. "Climate Change and the Federal Reserve." Accessed Dec. 13, 2019.
The Guardian. "Climate Change Could Make Insurance Too Expensive for Most People – Report." Accessed Dec. 13, 2019.
Cornucopius Climate Change Service. "Cornucopus Climate Change Service." Accessed Dec. 13, 2019.
U.S. Global Change Research Program. "National Climate Assessment." Accessed Dec. 13, 2019.
American Meteorological Society. "Whither the 100th Meridian? The Once and Future Physical and Human Geography of America’s Arid–Humid Divide. Part II: The Meridian Moves East." Accessed Dec. 13, 2019.
U.S. Forest Service. "Bark Beetle Fact Sheet." Accessed Dec. 13, 2019.
U.S. Environmental Protection Agency. "Climate Change Indicators: Ragweed Pollen Season." Accessed Dec. 13, 2019.
American College of Allergy, Asthma, and Immunology. "The Year 2040: Double The Pollen, Double The Allergy Suffering?" Accessed Dec. 13, 2019.
U.S. Global Change Research Program. "Heat Waves." Accessed Dec. 13, 2019.
Climate.gov. "Climate Change: Global Sea Level." Accessed Dec. 13, 2019.
National Oceanography Centre. "Rising Sea Levels Could Cost the World $14 Trillion a Year by 2100." Accessed Dec. 13, 2019.
Congressional Budget Office. "Repealing the Individual Health Insurance Mandate: An Updated Estimate." Accessed Dec. 13, 2019.
Centers for Medicare and Medicaid Services. "National Health Expenditure Projections 2018-2027." Accessed Dec. 13, 2019.
U.S. Energy Information Administration. "Annual Energy Outlook 2019 (Excel)." Accessed Dec. 13, 2019.
U.S. Energy Information Administration. "Annual Energy Outlook 2019 With Projections to 2050." Accessed Dec. 13, 2019.
U.S. Energy Information Administration. "The United States Is Expected to Export More Energy Than It Imports by 2020." Accessed Dec. 13, 2019.
U.S.-China Economic and Security Review Commission. "Testimony before the U.S.-China Economic and Security Review Commission Hearing on 'U.S.-China Relations in 2019: A Year in Review'.” Accessed Dec. 13, 2019.
Office of the United States Trade Representative. "United States and China Reach Phase One Trade Agreement." Accessed Dec. 13, 2019.
The Federal Reserve Board. "The Great Inflation of the 1970s." Accessed Dec. 13, 2019.
Board of Governors of the Federal Reserve System. "What Are the Federal Reserve's Objectives in Conducting Monetary Policy?" Accessed Dec. 13, 2019.
IRS. "Real Estate (Taxes, Mortgage Interest, Points, Other Property Expenses)." Accessed Dec. 13, 2019.
Congress.gov. "Tax Cuts and Jobs Acts." Accessed Dec. 13, 2019.
Board of Governors of the Federal Reserve System. "Federal Reserve Issues FOMC Statement." Accessed Dec. 13, 2019.
Zillow. "Zillow Predicts Shrinking Homes and a Stable Market in 2020." Accessed Dec. 13, 2019.
Department of Defense. "DOD Releases Fiscal Year 2020 Budget Proposal." Accessed Dec. 13, 2019.
U.S. Department of Defense. "Defense Budget Overview, United States Department of Defense Fiscal Year 2020 Budget Request." Accessed Dec. 13, 2019.