Top Nine Economic Predictions for the Next 10 Years

Look beyond the day-to-day crises, the ups and downs of the stock market, and news headlines. Here are the top nine predictions that most affect both the United States and your personal economy over the next decade. 

• 01

   The U.S. Economy Will Boom Then Bust

  

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  The Federal Reserve predicts economic growth, as measured by gross domestic product, will rise to 2.5 percent in 2018. That's within the ideal range of 2-3 percent. 

  While a candidate, Donald Trump promised to boost growth to 4 percent. A 4 percent growth rate would set off a dangerous boom and bust cycle. If growth does hit that level, it could create a recession by 2020. You may need the five steps that protect you from the next economic crisis.

• 02

   Health Care Costs Escalate as Trump Weakens Obamacare

  

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  Trump's tax plan repealed the Obamacare tax on those who don't get health insurance.  In 2019, when the repeal takes effect, 13 million people will drop coverage. 

  In 2018, a series of executive orders will take effect. The Secretary of Labor will expand access to association health plans.  The administration would exempt association plans from the Affordable Care Act's rules and state licenses. As a result, the new policies won't be regulated. 

  The orders also expands short-term health plans. Trump's executive orders directs agencies to find ways to limit consolidation and increase competition in health care.

  How It Affects You

  Without insurance, fewer people will get preventive care. Low-income families without insurance would return to using the hospital emergency room as their primary care physicians. That will make health care more expensive for everyone.

  As health care costs rise, so will the costs of Medicare and Medicaid. That will limit how much can be spent on other government programs. It will also increase the debt.

• 03

   The Federal Debt Will Increase

  

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  The  U.S. debt exceeded $21 trillion in 2018. It had remained stable after sequestration kicked in. That required a mandatory 10 percent federal budget cut through 2021. But that could be repealed under a Trump presidency.

  Trump promised to reduce the debt. But his policies will increase it by $5.3 trillion.

  How It Affects You

  Disagreements over how to reduce the debt means a debt crisis every time the debt ceiling needs to be raised. Long-term, balancing the budget means spending cuts, since Trump has promised to cut taxes. That means a cut in the largest discretionary budget item, military spending. Social Security pays for itself, and Medicare partially does, at least for now.

  As Washington wrestles with the best way to go about this, it creates uncertainty about 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.

  The U.S. debt-to-GDP ratio is 102 percent. That's not a sustainable level. It's above the 77 percent benchmark level recommended by the International Monetary Fund. 

  Federal spending is a component of GDP, which measures the output of the entire economy. Elected officials use discretionary fiscal policy to manage the economy. Higher income taxes take money out of consumers' pockets, regardless of where the tax is imposed. Business taxes are passed on through higher prices, or through layoffs and reduced investment for companies that can't raise prices.

  Supply-side economics predicts that lowering business taxes will free 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. Whether it's done through tax hikes, spending cuts, or both, austerity measures mean slower economic growth. 

• 04

   China Will Expand Its Global Power

  

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  China became the world's largest economyin 2014, overtaking both the United States. (No. 2) and the European Union (No. 1). China's economic growth is slowing from double-digits to around 7 percent annually. But it's now so large that it will continue to affect the U.S. economy much more than it ever did in the past.

  One reason is that the U.S. debt to China is still more than its debt to any other country. The U.S. trade deficit to China is shrinking, but still large. 

  How It Affects You 

  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. It is also modernizing China's stock markets. These efforts will feel like a catastrophe to the U.S. economy, simply because the intertwined impacts are unprecedented. 

• 05

   Dollar Decline Will Resume

  

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  After rising 25 percent in 2014 and 2015, the dollar's value will resume its long and gradual decline in value. 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 also become more concerned about the U.S. debt. They'll fear that United States wants the dollar to decline so the relative value of its national debt is less. They are diversifying their portfolios with more non-dollar denominated assets, such as the euro. 

  How It Affects You 

  A weak dollar will increase import prices. That contributes to inflation. It will increase oil and gas prices. It will also lower export prices, spurring economic growth. This will be a gradual dollar decline. So, ignore all those predictions of a dollar collapse.

• 06

   Oil and Gas Prices Will Rebound

  

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  The U.S. Energy Information Administration provides an outlook from 2018-2040. It forecasts that oil prices will average $57/barrel in 2018. It warned that commodities traders believe prices would range between $48/b to $68/b by March 2018. 

  Oil prices were hammered by a strong dollar in 2014. Oil contracts are priced in dollars. U.S. shale oil companies created a shale oil boom and bust. Oil companies laid off workers, some defaulted, while others were bought up. As a result, oil prices hit  13-year low of $26.55/b on January 20, 2016.

  But then OPEC  limited supply in 2017, sending prices back to current normal levels.

  By 2030, oil prices will be $95 a barrel. The EIA's Annual Energy Outlook predicts that U.S. shale oil production will level off after that. As a result, oil prices will rise to $117 a barrel by 2050.

  How It Affects You

  Higher oil prices mean higher gas prices. In 2008, when oil prices spiked to $145 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. 

• 07

   Inflation Will Remain Subdued

  

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  When oil prices return to a normal range, it will raise fears about hyperinflation. That won't happen. The Federal Reserve is vigilant about reversing quantitative easingand 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 risetemporarily 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. 

• 08

   Housing Growth Will Be Sustainable

  

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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 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.

  States have finally worked through the shadow inventory of homes headed for the foreclosure pipeline. That freed up the housing market to grow robustly. The only hiccup to this rebound could be in 2018, as adjustable rate mortgages rise in cost. That's why the Fed is raising interest rates slowly. It knows that, as mortgage rates rise, housing prices will drop to offset the higher cost to homebuyers. 

  A majority of Americans believe the real estate market will crash in the next two years. They see housing prices rising, and the Fed raising rates. To them, it looks like an asset bubble that will be followed by a collapse.

  But there are nine differences between the 2017 housing market and the 2007 market. For example, only 5 percent of mortgages were subprime. In 2005, subprime made up 20 percent of all mortgages. These differences make a housing market collapse less likely.

  
  

• 09

   The United States Is Involved in Fewer Ground Wars

  

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  The $21 trillion debt and sequestration means that the United States really can't afford to wage large ground wars anymore. 

  The FY 2012 budget reached an all-time high of $804.8 billion to pay for the wars in Iraq and Afghanistan. That the cost of total military spending, including Homeland Security, Overseas Contingency Funds, and the Veterans Administration. It's more than either Social Security or Medicare. It helped create a $1.087 trillion deficit.

  In 2011, the special ops raise eliminated Osama bin Laden. That showed that low-cost special ops were more cost-effective than the war in Afghanistan to defeat America's enemies.

  Defense spending was projected to shrink to $773.5 billion by FY 2016, which will help the budget deficit drop to $441 billion that year. (Source: FY 2017 Federal Budget)

  How It Affects You

  You may feel more insecure as terrorism grows and it seems like America is doing little about it. Other countries will be forced to step up to the plate to keep the world safe. It will seem like U.S. global power is declining.