The US economy is on far shakier ground than most Americans would like to admit. Despite the stock market rally and optimism about President-Elect there are some aspects of the economy that should have us all worried.
There are four immediate problems and two long term economic troubles that Americans should be worried about. If these issues are not dealt with soon, the United States might face major economic pain in the near future.
Four Economic Problems you should worry about right now include
There are four major economic problems that will affect the nation in the near future possibly within the next few months. They are:
- The strong US dollar. This is the most immediate of the problems and one of the least understood. The dollar has gained 2% against the Chinese yuan in the last in months, it is now worth nearly seven yuan, USA Today reported. That threatens all US exports because foreign products are more competitive. It also means less foreign investment in the US which might mean fewer jobs.
- Long term problems the dollar can generate are higher interest rates, inflation and havoc in the bond market. Real pain might result if the Federal Reserve has to take steps to devalue the dollar.
- Real estate. Parts of the US, particularly large cities like New York, San Francisco and Denver are in a real estate bubble with record home prices. Mortgage interest rates which just jumped to 4% can burst a bubble quickly. So can a strong dollar which deters foreign speculators who driving much of the bubble.
- A related problem is that housing prices are now so high that many Americans cannot afford housing. Homeless is at epidemic proportions in California. The situation in Los Angeles is now so bad that county supervisors have called for a state of emergency.
- One result of high housing prices is that people have less money to spend on other stuff. A scarier problem is a sudden bursting of the bubble which will lead to lots of underwater homes and a new foreclosure crisis.
- Student Loans. Student loan debt in the US reached $1.2 trillion in July and only 40% of it is being paid off. It is now hurting the economy because many young people are unable to buy things like homes and cars. Some are even putting off marriage and children because of student loans. Federal efforts to forgive those loans are a drop in the bucket around $100 billion.
- An ugly side effect of student loans is many young people have no real incentive to go to work because much or most of their money will be used to pay loans. Future problems from student loans include all the people that will be paying them off for decades. Some may not be able to send their own kids to college because will still be paying off student loans decades from now.
- The Public Pension Crisis. State and local governments across the nation have accumulated $4.798 trillion in pension obligations, but they have only $3.607 trillion to cover the promises to employees, The Hoover Institution calculated. That means they will have to come up with $1.91 trillion, and the most likely place it will come from is cutting basic government services.
- An effect of this being felt in cities like San Jose, California; is that large numbers of public employees are retiring early in order to enjoy pensions while they are there. 485 police officers have retired in San Jose in the last four years leaving the force so shorthanded that detectives are being reassigned to patrol and cops are being forced to work astronomical amounts of overtime. Some officers are even sleeping in recreational vehicles in the police parking lot in order to be able to cover shifts.
- Education is being cut in other areas, in Eire, Pennsylvania 20% of the school district’s employees have been laid off to get money to cover pension obligations, The Wall Street Journal reported. Leaky school roofs are not being fixed and the district can longer afford new textbooks.
- A major problem with public pensions is that there is no federal mechanism for covering underfunded public pensions as there with private pensions. That means many pensioners; including police and firefighters that risked their lives, might get little nothing in the future. To make a bad situation some of those people might get little or nothing from Social Security because they did not pay enough into that system.
Two Long term Economic Nightmares America Needs to Deal with
There are two long term economic nightmares that might threaten the very fabric of our society. They are:
- Technological Unemployment. Some of the smartest people around including legendary bond manager Bill Gross, President Barrack Obama and Elon Musk think millions of jobs will be lost to robotization and digitalization over the next decade. Yet little or nothing is being done to address the problem. Politicians are afraid to talk about potential solutions such as basic income. This nightmare is already beginning, Walmart (NYSE: WMT) is terminating 7,000 accounting staff and replacing them with machines and invoicing software.
- Income Inequality. One of the ugliest effects of technological unemployment is growing income inequality because the profits from the new technologies go to an increasingly smaller segment of society. Potential results from income inequality include social and political unrest and class warfare. A major dilemma our society will have to face is large numbers of formerly middle class people who feel entitled to a good income, but are no longer earning one.
These are the economic problems that should keep us awake at night. How deal with them will shape our nation and determine if we have prosperity or chaos.