A Self-Employed Carpenter’s Thoughts on the Future
The world is changing. Currently, as a nation, we have a large and well-trained section of our work force dedicated to residential construction. Unemployment within the construction industry now exceeds 20%. That number takes into account only workers getting unemployment compensation. There are also many self-employed individuals, ineligible for unemployment compensation, who have simply run out of customers and work.
That is the bad news. Now the worse news: Not only are those jobs not coming back, but the construction industry will continue to diminish for the foreseeable future. The real estate glut is not on hold; it is over. Waiting for its return is similar to waiting for next the big surge in typewriters, 35mm cameras, and home phones.
Why are the construction jobs not coming back? There are three main reasons, the first of which is inflation. Decades of credit expansion and the recent printing of money (quantitative easing) have increased the overall volume of our fiat currency: dollars. Therefore, the value of each dollar unit has been reduced, causing prices to rise. This results in increased costs in construction of new homes. Higher new construction costs make staying in and repairing older structures, or renting, more attractive.
The second reason is fuel costs. Living rurally and working in urban areas is becoming very expensive. Reasons one and two will keep an increasing number of younger workers and couples living and renting closer to work. Why take the financial and mobility risks associated with homeownership?
The third reason is we are broke. Who are “we”? Western civilization, comprised mainly of the U.S. and Europe. Consider this…there are gold and silver coins and bullion: actual wealth storage vehicles. There are paper dollars: temporary wealth storage vehicles. And there are also trillions of “dollars” represented as pixels on screens in accounting software programs.
When I say that we are broke it is because I don’t believe those pixel dollars represent anything. All of the wealth supposedly held in those pixels does not exist. It is a classic Ponzi scheme. If you go today and convert your pixels to actual dollars, everything is just fine. But if 10% of us go today and try to convert our pixels into dollars, the banks will shut down…Why? Because the money doesn’t exist. There is no actual wealth stored in any of those pixels.
Spain and Portugal may require financial bailouts in 2011. Part of the fallout from the Greek financial crisis last year was the creation of a eurozone bailout fund of $1.01 trillion. That fund could be used to assist Spain and Portugal if necessary. Where did that $1.01 trillion come from? Was it removed from another sector of Europe’s economy? Supplied in gold bullion to EU headquarters in The Hague? Removed from the savings accounts of earnest Europeans?
No, none of those could supply that amount of wealth. It was simply created by banking and government officials in pixel dollars (euros). It has no actual, tangible value, because it was created out of thin air. One trillion dollars set aside after a series of business meetings, and no individual, company, or government had to contribute one dollar of actual wealth. The pixels in the spreadsheets represent nothing. They serve only to continue the illusion that everything is fine. Everything is not fine. We don’t have the wealth we’ve been lead to believe we have…we are broke.
What does that have to do with construction? Everything. Cities and counties are broke. They cannot afford to borrow more money, and they cannot continue to raise taxes. States cannot afford the programs and pensions that they’ve promised, nor can they raise taxes. Companies cannot afford the pensions and benefits they have promised. They cannot raise prices either, as their customer base is already shrinking due to cost. Families and individuals are struggling to both get out from under mountains of debt and to mesh sharply rising prices into their budgets.
The federal government spent $3.5 billion more per day than it brought in for fiscal year 2010. It is having trouble borrowing money by selling bonds to foreign entities because our current debt makes those bonds much riskier. The Federal Reserve is administering a program of quantitative easing (printing money or just adding pixel dollars) to keep up the appearance that everything is shipshape. What ship? I’ll get back to that. Point being we are broke. There will be no excess income or wealth to support a large-scale residential construction industry in the near future.
The ship, of course, is the Titanic. Imagine that we’ve already hit the iceberg. But…everything seems to be roughly the same, and the ship’s intercom is continually telling us that everything is just fine. Remember the bailouts and the stimulus packages of hundreds of billions, even trillions, of dollars? That was the crew and the first-class passengers casually heading past you to get into the lifeboats. This current financial system will be on the bottom within a decade. And no, there is not going to be a lot of new residential construction during that decade.
We are already well into a global wealth realignment. How is wealth created? Not obtained, but created? Manufacturing is the application of labor to raw materials to make products. The exchange of those products for tangible assets creates wealth. A nation that manufactures and sells abroad is creating and accumulating wealth. The lower, middle, and upper classes of those nations, whether participating directly in manufacturing or not, benefit from that creation of wealth.
Western civilization in general, and the United States in particular, no longer creates wealth; we simply move it back and forth. Usually to the benefit of those who have the capacity to slowly, without causing concern, convert pixels into actual assets (think lifeboats).
But…the curtain is slowly falling away. The sad state of our current financial situation has become too large, and too smelly, to hide. We are broke. No real wealth means no real money and no real credit, and, therefore, no large force of construction workers will be needed. Take a deep breath and figure out what you want to do next. And yes, I am saying that as much to myself as anyone….
My guess is that it will take at least a generation to recover from this financial predicament. All our debts will have to be paid…the debts that your governments have incurred in your name will be paid by you. Believe it. We will have no choice but to live within our reduced means. The options you have today, the programs and support you have today, the retirement that you think you will have tomorrow no longer exist.
China is not going to be a superpower; they already are the superpower. The Chinese are testing a stealth fighter technologically superior to our best fighter, of which we have scant few. When they move to production, they will be able to produce as many as they think they need. We will not keep pace…we are broke. We will lose air superiority in a wide arc around China, including the Koreas, Japan, Taiwan, and the Philippines within five–10 years. The discussion of whether or not we should be the world’s policeman is moot; we can’t be.
We have to pay our debts, live within our means, roll up our sleeves, and get back to turning raw materials into products with efficient labor. Government’s restrictions and regulations concerning manufacturing will begin to ease…they will have no choice. We as a nation will eventually emerge stronger and more compact. We as individuals will be greatly challenged, but we will be fine, if not finer.
There is no need for panic or despair, no matter what the news brings in the near future. Take this period of relative calm to sharpen your tools, mend your work clothes, and trim the fat out of your budget. We’ll all be back to work shortly, and no doubt working our butts off at something we’d never expect today…
Regards,
Jim Kearns
Rustic Structures
Whiskey & Gunpowder
February 9, 2011
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Jim Kearns
Jim Kearns is the owner and operator of Rustic Structures, a traditional timber framing company located in upstate New York. He is also a Seabee in the U.S. Navy Reserve… Obviously he enjoys long walks on the beach. Jim has a Bachelors degree in Human Resource Management from the New School in NYC, NY. “Your rights can only be surrendered, never taken.”
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Don’t worry, Jim. The US govt just enacted legislation that will allow you, your wife, all your kids, aunts, uncles, visitors to the country; legal or not, to get “free health care”. The govt will cover the cost and its not going to cost you anything. The evil rich are going to pay for it. The govt has plenty of money. Furthermore, when you retire, you can live off a govt check that will take care of your needs and still go to the doctor for free. Don’t worry about losing these “rights” – half of your fellow countrymen (and women) will continually vote to ensure these things.
Oh, the Chinese are probably gonna crash harder than anyone else.
Jim,
Youse sed:
We will not keep pace…we are broke.
Sort of reminds you of the U.S., Soviet Union, and Ronald Reagan, doesn’t it?
always,
tony
This man is spot on! I am also an out of work Residental State cirtified contractor. It doesen’t matter
how low I go on my work bids,they just don’t have the fiat or they are very afraid to spend any of it.
People who are living out of there trucks are hard to beat in prices for work. I have bid BELOW COST
just to get some kind of work & STILL to high. The state is still right there collecting it’s taxes on the business that collects no profit. We also are forced by the state to carry insurance in order to keep
our licences active. I am now in forclosure . I will have to drop the license that I paid many thousands
for. I guess that I don’t need it anymore anyways. Add me to the ranks of the underground economy.
We do NOT NEED loans that we don’t qualify for . We need WORK!!
Abamanation & company gave all of the fiat that we didn’t have in the first place to the banks so that
they would give it right back( plus interest) through buying tresurary notes(more debt)to the state. None was ever intended to go to the small business person. That was more smoke while the ship is still sinking.
I used to be A tax payer, now I will become A tax serf.
There are millions of us out here who CANNOT get unemployment. Add us to the discouraged worker
& unemployement numbers surge above 25% http://www.shadomstats.com
Great article Jim. And, I must admit that I agree with much of what you stated. One thing that does deserve mentioning is that the U.S. still has a powerful sector of its economy that is producing and that is Agriculture. I live in an agricultural state, and thus, we are not feeling the pain that other states and areas of the country are feeling, although that may only be a temporary condition. I do feel, however, that U.S. Agriculture is the one bright spot in all of this. I don’t know exactly what will happen in the next decade or how agriculture will fit into all of this. One thing I do know, the pain will eventually be felt by all.
Meanwhile, your average American believes that the commercials on Superbowl Sunday are the most critical item for national discussion…
[...] My first article on this topic concerned the sharp contraction of the residential construction industry in the U.S. I am a self-employed carpenter. The main thrust of that article was that the housing market is not going to recover to anything approaching its zenith. [...]
[...] much of a comeback, along with some possible alternatives for those who want to change industries. A Self-Employed Carpenter's Thoughts on the Future [...]
The debts won’t be repaid. They will be liquidated. That will probably lead to chinese aggression since they are one of the largest creditors of the united State (s left off intentially).
But china is not a superpower. Their economy is as much a bubble as the western. What economic theory do you think chinese central bankers, planners, and government officials are putting to use?. The only difference is they have little debt. China is engaging in mecantilism and history provides plenty of evidence as to where that leads.
this is exactly the sort of childish illiteracy that drives the decline and fall. how are “some dollars” mere pixels but its different if they are, what- paper? book entries? subway tokens? where did the original dollars come from then?
the reason construction is falling off is plain to see without stupor- there are way more houses than people. and the whole way of doing most anything these days, from construction to agriculture to manufactures to whatever, is false destructive wasteful meaningless and counter-productive. we are sitting on 120 years of supressed technological advances along with over 5 billion square acres in north america and nobody needs more dumbass american workers who cant count.
Everyone in this country is lazy and doesn’t want to work, and I mean work hard. We deserve this, if everyone shut up and worked and didn’t live like they were a movie star we would be fine. Back in the 60′s if a family had 2 cars they were rich now people want 4. Everyones spoiled, I work my tail off so i am not that scared. The union pigs are the ones who are going to hurt.