Mechanical contractor’s role enhanced by new flow-control and piping technology

BY MORRIS R. BESCHLOSS,

PVF & economic analyst emeritus

 

Although there is continued concern regarding credit problems inhibiting much of current commercial development (hotels, shopping centers, high-rise apartment buildings, etc.,) the prominence of our industry’s mechanical contractor is being dramatically enhanced.

 

Whether focusing on traditional new projects and maintenance of our nation’s existing commercial infrastructure, or dealing with expansion of ethanol or renewable energy mandates, the increasingly complex piping and flow-control systems are dependent on the cadre of our industry’s expert mechanical contractor organization.

 

Having closely observed the proliferation of America’s multi-faceted energy sector, I have become increasingly impressed with the involvement of mechanical contractors in arenas that had previously not been their areas of expertise.

When it comes to any areas of piping and flow control, the reputation of our mechanical contractor practitioners has spread deeply into the industrial sector. Where such contracting organizations were previously limited to the commercial sector, mechanical contractors are gaining an increasing footprint in all functional areas of piping systems wherever they may be found.

 

Although this started out as a temporary expedient several years ago, it has now become a permanent fixture, as these professional mechanical contractor businesses have gained the respect of turnkey constructors, who were hard-put to harness comparable areas of expertise. These were mandatory to deal with the ever-growing complexity of piping systems to accommodate industry’s evolving technology.

 

The need to develop additional technicians to join existing contractor enterprises is becoming manifest. The need for recruitment will be even more intense as economic recovery and internal development join to put greater demand on this indispensable component of the plumbing-heating-cooling-piping contracting sector of our industry.

 

Independent business threatened by Administration initiatives

 

The small- and medium-sized businesses comprising the overwhelming majority of the PHCP industry’s contracting sector could be threatened by the rash of initiatives being instigated by the Obama Administration.

 

Topping the list is climate control and its “cap and trade” component, which will enforce strict limitation on the emanation of carbon dioxide and greenhouse gases. This will put severe restrictions on future building, and increase the cost of construction immeasurably.

 

The penalties on established businesses and homes will be even more costly as electric utilities pass on their additional costs to consumers, whether individuals or businesses.

 

Further pressure on private businesses will come from projected single-payer universal healthcare and pressure for enforced unionization by what’s become known as card-check. Both would vastly increase business costs through taxation to support government healthcare, even if the current benefit package costs were transferred to a government program. Massive additional taxation would cut substantially into private establishments’ profit margins.

 

But most obnoxious of all to non-union enterprises could be “card-check,” which would put undue pressure on individual employers, as their votes for or against a shop’s unionization would be open to “enforcers” from the relevant union local. Secret ballots will cease to exist if this Administration-inspired initiative eventually becomes law.

 

War on fossil fuels could cripple economic recovery

 

The illogical attempt to snuff out the U.S. production of coal, oil, and even natural gas, could accelerate if the Congressionally-approved “cap-and-trade” bill is eventually passed by the Senate.

 

The attempt to tie this misbegotten Obama Administration initiative to lessening dependence on opec oil is turning reality upside down. In fact, the eventual passage of this bill would put the U.S. further in thrall to foreign oil producers, with eventual price increases on both oil and natural gas eventually making last summer’s “spikes” look tame by comparison.

Three additional factors making the ‘fossil fuel future’ of oil production in the U.S. infinitely worse are:

 

1) A last-minute amendment to cap-and-trade to garner Congressional votes would impose stiff tariffs on all imports that don’t share America’s CO2 and greenhouse gas restrictions.

 

2) Oil producing states are now seriously considering taxing fossil fuel production, raising its costs, which, of course, will be passed on to the consumer.

 

3) If the cap-and-trade amendment stands, with or without the bill’s passage, protectionism will have taken a major step forward, precluding access to Canadian oil, converted from tar sands, comprising America’s No. 1 import source.

Renewable energy is a long-term expedient that will not reach two percent of global energy needs in the foreseeable future. For those not in the know, wind and solar have no relation whatsoever to the all-encompassing transportation sector, unless sailboats are your major method of movement.

 

China lobbies for global reserve currency

 

Like a bad penny, China’s push for a global reserve currency keeps turning up. Although this sentiment has previously been stated, it had not prevented Beijing from continuing to hold and buy a massive amount of U.S. Treasuries.

 

But two recent factors are making China’s latest “call for monetary change” more ominous. First, the Peoples’ Bank of China, the mouthpiece of the Communist government, has made this declaration officially.

 

The Chinese central bank went further by declaring that only such an international reserve currency can protect global investors from being victimized by the instability of one nation’s monetary standard (i.e. the U.S. dollar).

 

Although this initiative has been floated by various Chinese spokesmen intermittently, this is the first time that it carries the imprimatur of an important organ of the Chinese government.

 

Secondly, Chinese tilt toward protectionism in supporting the growth of its domestic economy puts it at loggerheads with massive U.S. imports at a time when its exports to the U.S. have been drastically cut.

 

The Chinese central bank looks at its nation’s future through the same prism as the U.S. In the short term, Beijing sees deflationary pressures temporarily widening as overcapacity creates a production overhang, while lower manufacturing material costs reduce prices in general.

 

However, like the U.S. Fed, the Chinese central bank sees this period being followed by mounting inflationary pressures, as the world economy recovers, with a record global money supply exerting upward pressure on goods in short supply the world over.

 

The Chinese have the additional problem of attempting to protect the $1.5 trillion that they have tied up in U.S. Treasuries. Their push for a multi-faceted reserve currency looms ever larger as the ravages of a worldwide inflation come ever closer in the time cycle.

 

Hyperinflation waiting in the wings

 

With the Federal Open Market Committee cancelling worry over deflation in their post-rate setting announcement last Wednesday, their concern is now becoming focused on a new era of inflation coming down the pike.

 

This anxiety has been heightened by former Fed Chairman Alan Greenspan and investing genius Warren Buffett, both of whom have issued stern warnings that hyperinflation is inevitable under present circumstances.

 

Although they characterize this oncoming financial tsunami more in terms of the Carter years’ double digit spurts, rather than the German Weimar Republic’s 1920s cataclysm, both economic titans point to America’s upcoming unsustainable debt.

 

With a budget deficit approaching $2 trillion this fiscal year (4 times the previous record) and President Obama’s front-loaded initiatives accounting for at least $4 trillion to further universal healthcare, renewable energy, and climatological cap and trade, both Greenspan and Buffett claim that such monetary irresponsibility will spawn the worst inflationary spiral in more than 30 years. They specify that such certainty is not a matter of if, but when.

 

Time-wise, this state of affairs will likely coincide with the eventual global recovery, probably in mid-2011. At that point, labor costs and rising capacity utilization will be competing for the shrinking availability of funds. This will be especially true in the case of potential U.S. capital investments being crowded out by the voracious demands of uncontrolled government programs.

 

This is a potential nightmare that can only be requited by increasingly cheaper dollars paying off government debts with the sheer volume of depreciated currency.

 

Major new taxes needed to support Obama initiatives

 

What has gotten lost in the turbulence generated by President Obama’s controversial initiatives is the flood of additional taxes that will be needed to support these programs, if passed.

 

The Congressional Budget Office, considered to be the most realistic of non-partisan analysts, has predicted that even the most glowing projections of tax revenues in upcoming years does not even begin to close the government’s projected income/outgo revenue gap. This means that such new tax-raising schemes as federal retail sales taxes, value-added taxes, and across the board increases for every American would have to be instituted to curb the inevitability of runaway inflation.

 

The combined impact of the $800 billion stimulus plan, renewable energy, universal healthcare, and climatological cap-and-trade legislation would saddle the U.S. budget with trillions of dollars of additional debt.

 

In one week alone, the U.S. Treasury was floating $104 billion of new Treasury bond offerings to support the funds needed for a partial down payment of a $1.8 trillion trade deficit expected by the end of fiscal 2009 (Sept.30).

If all or most of the Obama initiatives become law, the national debt is due to jump well upwards of $12 trillion next year and would be headed for $20 trillion by the end of a second Obama presidential term, in January 2017.

 

Under such circumstances, interest on the debt alone would eventually exceed defense spending and all entitlements existing today. Even under economic boom conditions, this would not allow additional U.S. government spending on discretionary new programs, or a cost increase in existing ones.

 

There is, of course, the ultimate cop-out, hyperinflation, that could turn the U.S. economy into a hotbed of dreaded stagflation. But this choice of the lesser of two evils would convert the once invincible U.S. economy into a sorry shadow of its former self.