How the economy changes will affect the citizens

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    • 03

       The Federal Debt Will Increase

      will the debt ever be paid off

      Illustration: Turnbull/Getty Images

      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 But that could be repealed under a Trump presidency.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 may increase it by $5.6 trillion.

      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. Long-term, balancing the budget means spending cuts since Trump has promised to cut taxes. Social Security pays for itself, and Medicare partially does, at least for now.

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

      The U.S. debt-to-GDP ratio is forecasted to hit 108 percent in 2018. 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 predict 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

      u.s. debt to china

      Photo: Thomas Kuhlenbeck/Getty Images

      China is the world’s second largest economy, behind the U.S. It was named the world’s largest economy in 2014. China’s economic growth is slowing from double-digits to 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

      Dollar will decline

      Photo: Image Source/Getty Images

      After rising in 2014 and 2015, the dollar’s value will likely resume its long and gradual decline in value. Forex traders were betting on a strong dollar when the Federal Reserveannounced 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 the U.S. 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 increases 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, don’t ignore all of those predictions of a dollar collapse.

    • 06

       Oil and Gas Prices Will Rebound

      Gas prices are mostly affected by oil prices

      Photo: Andresr/Getty Images

      The U.S. Energy Information Administration provides an outlook from 2018-2040. It forecasted 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. As of September 2018, that figure is $69/barrel.

      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.

      The International Energy Forum projected, as far back as 2007, that by 2030, oil prices will be $95 a barrel in nominal dollars. 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 $114 a barrel by 2050.

      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.

    • 07

       Inflation Will Remain Subdued

      inflation rate targeting

      Photo: Predrag Vuckovic/Getty Images

      When oil prices return to a normal range, it could raise fears about hyperinflation. The Federal Reserve, however, 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 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. Gold serves as a good barometer on the health of the economy.

    • 08

       Housing Growth Will Be Sustainable

      couple buying house

      Photo: sturti/Getty Images

      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.

      Some states are working through the shadow inventory of homes headed for the foreclosure pipeline. That translates to the housing market growing 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 few 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.



    • 09

       The United States Is Involved in Fewer Ground Wars

      Successful military operations require fewer ground troops. (Photo:Chris Hondros/Getty Images)

      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 because of the $804.8 billion it used to pay for the wars in Iraq and Afghanistan. That’s the total cost of total military spending, including Homeland Security, Overseas Contingency Funds, and the Veterans Administration. That figure totaled 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.

      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. As a result, it will seem like U.S.’s global power is declining.

Prepare Yourself For the Future With These 9 Predictions

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

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