Top 10 Economic Predictions for the Next 10 Years

To start planning for your future for the long term, here are the top 10 predictions that most affect the United States and your own personal economy over the next decade. 

The U.S. Economy Will Boom, Then Bust

Auto manufacturing is an important driver of GDP.
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The Federal Reserve predicts that economic growth, as measured by gross domestic product, will slow to 2.3 percent in 2019. It will be 2 percent in 2020 and 1.8 percent in 2021. That's within the ideal range of 2 to 3 percent. 

While a candidate, Donald Trump promised to boost growth to 4 percent. Growth at that level could create a recession by 2021. It could set off a dangerous boom-and-bust cycle. Fortunately, there are five steps that will protect you from the next economic crisis

Extreme Weather Could Cause Economic Crisis

Hurricane Ike Damage
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A study by Pennsylvania State University 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 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.

In July 2018, heat waves set new temperature records all over the world. Death Valley had the hottest month ever recorded on Earth. The average temperature was 108 degrees Fahrenheit. 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 fall daily. This level of damage has never been seen in U.S. recorded history.

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. 

North American and European wheat, corn, and rice crops will lose up to 25 percent for each 1 degree Celsius increase. 

Between 2007 and 2017, global warming cost the U.S. government more than $350 billion. Hurricanes in the past 16 years cost the economy $700 billion.

How It Affects You

Droughts in the Midwest killed off corn crops, raising beef prices. The California drought increased the cost of nuts and fruits.

Fifty million asthma and allergy sufferers are already paying for increased health care costs. Higher levels of greenhouse gases encourage plants to produce "super pollen."  Longer summers lengthened the allergy season. In some areas, the pollen season is now 25 days longer than in 1995. Pollen counts will double by 2040. 

In 15 years, everyone will feel the effects if nothing is done. Temperatures will be 2C hotter than in 1900. Almost 40 percent of the world’s population would suffer from extreme heat waves. More than 400 million people would experience severe drought. The U.S. Southwest would warm by 5.5 C, creating near-permanent "super-droughts."

Another 80 million people would be flooded from rising sea levels. Almost all coral reefs would die off. That alone would cost the global economy $1 trillion each year. The reefs support the livelihoods of 500 million people in 50 nations.

Health Care Costs Escalate as Trump Weakens Obamacare

A doctor greets a patient
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Trump's tax plan repealed the Obamacare tax on those who don't have health insurance as of 2019. Experts believe 13 million people will drop coverage. 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.

In 2018, the Trump administration expanded access to association health plans and short-term health plans. They won’t have to comply with the Affordable Care Act's rules and state licenses. 

 How It Affects You

Without regulation, the new policies won’t provide as much coverage. People who buy them will 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 would return to using the hospital emergency room for primary care. Hospitals transfer that cost to Medicaid and insurance companies. It makes health care more expensive for everyone.

The Federal Debt Will Increase

The U.S. debt gets larger and larger each year.
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The U.S. debt exceeded $22 trillion in 2019. It had remained stable after sequestration kicked in. With that action, Congress required a mandatory 10 percent federal budget cut through 2021.

The U.S. debt-to-GDP ratio is 106 percent, a level that is not sustainable as interest rates rise. It will increase the interest payments on the debt. It’s above the 77 percent tipping point recommended by the International Monetary Fund

Trump promised to reduce the debt. But so far, his policies will increase it by $5.6 trillion. The Tax Cut and Jobs Act alone added $1 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 percent, 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.

Oil and Gas Prices Will Rebound

Gas prices are mostly affected by oil prices
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The U.S. Energy Information Administration provides an outlook from 2018 to 2040. It predicted that the average price of Brent oil will rise to $85.70 per barrel. By 2030, world demand will drive oil prices to $92.82/b. By 2040, prices will be $106.08/b. By then, the cheap sources of oil will have been exhausted, making it more expensive to extract oil.

By 2050, oil prices will be $113.56/b. By 2022, the United States will export more oil than it imports. It has been a net energy importer since 1953. Oil production will rise until 2020 when shale oil production levels off at around 12 million barrels per day. Shale will make up 65 percent of U.S. oil production.

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 drive up the cost of food, which depends on the cost of transportation. 

The U.S. and Chinese Economies Are Intertwined

u.s. debt to china
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China became the world's largest economy in 2014. China's economic growth is slowing from double digits to 7 percent annually. But the nation is now so large that it will continue to affect the U.S. economy much more than in the past.

For example, Trump started a trade war to lower the U.S. trade deficit to China. But that’s making China’s economy slow. It’s affecting many emerging market economies that depend on China for trade. The stock market is suffering, making investors nervous.

As China’s exports decline, it will buy fewer U.S. Treasurys. China is the biggest purchaser of U.S. debt. As its demand for Treasurys declines, interest rates will 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 

The economies of the United States and China are intertwined. As a result, slowdowns in China’s growth will impact the U.S. economy in unprecedented ways. Higher interest rates will increase the cost of loans for U.S. businesses and consumers. They will also increase the interest on the debt. The U.S. government will have to divert more funds to pay off that interest.

A slowdown in Chinese exports will also increase prices for U.S. consumers. “Made in America” means higher costs since U.S. workers get paid more than those in China. 

The Dollar Will Continue to Decline

The dollar will resume its loss of value.
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The dollar's value will continue to decline. Prior to 2015, forex traders were betting on a strong dollar when the Federal Reserve announced it would raise interest rates. Now that it's happened, traders realize rates are only rising slowly. They will find another currency to bet on.

Foreign investors will 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

Inflation rate targeting encourages people to shop now before prices go up.
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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

Core inflation will remain at or under 2 percent. Food prices may rise temporarily since they follow volatile oil and gas prices. But the cost of living will remain about where it is today.

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

couple buying house
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Trump's tax plan limits 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. As a result, 94 percent of taxpayers will take the standard deduction. The National Association of Home Builders and the National Association of Realtors opposed this. As more taxpayers take a standard deduction, fewer would take advantage of the mortgage interest deduction.

The Fed is raising interest rates. That will make adjustable rate mortgages more expensive. As mortgage rates rise, housing prices will drop to offset the higher cost to homebuyers. 

How It Affects You

The tax plan will keep a lid on housing prices. But this is a good time to do that. Many people are concerned that the real estate market is in a bubble that could lead to another collapse. As long as the Fed raises rates slowly, then the housing market will not boom then bust.

The United States Is Involved in Fewer Ground Wars

Successful military operations require fewer ground troops.
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The $22 trillion debt and sequestration mean that the United States really can't afford to wage large ground wars anymore. 

In June 2018, the U.S. Senate voted an $82 billion increase for the 2019 military budget, increasing it to $716 billion. Roughly 17 percent of the U.S. federal budget is allocated to military spending, according to the Congressional Budget Office. 

The U.S. military says an increase in funding is essential so that improvements can be made to respond to global crises. But some critics have vocalized their opinions that this spending is not appropriate, given the lessened presence of the U.S. military around the world.  

And 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 still unprepared. Other countries will be forced to step up to the plate to keep the world safe. As a result, it will seem like U.S. global power is declining. 

Prepare Yourself For the Future With These 10 Predictions

By taking the time to understand these predictions, you may be able to better plan for your future.