COMMENTARY:

Thinking About Dependence on Independence Day

How things have changed! While we are still the "home of the brave," I have growing reservations about whether we are still the "land of the free," in the sense that the freedom of our choices and actions is more and more governed by our dependencies. You see, when you are "dependent," the options that are open to you to choose from become constrained and colored by the very nature of the dependency.

For example, we are dependent on foreign oil. In the 1970s, there was concern expressed when 20% of our oil needs were met from foreign sources. Now, 30 years later, at the advent of the 21st Century, oil imports approach 65% of what we consume-give or take a couple hundred thousand barrels per day. Does anyone really think that America's escalating addiction to foreign oil imports has not driven our nation's policies in the Middle East? Almost a quarter of the world's oil exports comes from Saudi Arabia alone!

Think about this Iraq mess we are facing. Will a transfer of "governing power" to Iraqi nationals lighten the burden on our troops and give us the opportunity to quickly declare victory and withdraw? Saddam may be ousted and in custody, but his power elite is alive and itching for a fight. Terrorism and the threat from it has increased-not diminished. Is this oil-rich region any more stable from what has happened in the past two years? (Don't forget that our dependence on oil (especially Middle East oil) has not dropped one barrel, and will probably increase.)

We are also dependent on foreign products. Trying to buy American-made goods is becoming a real challenge, if not an impossibility. So much of the world's "must-have stuff" was invented here, developed here, marketed here-but what, if any, is still manufactured here (if it ever was)?

English economist Adam Smith wrote in his 1776 treatise The Wealth of Nations that "wealth comes from the production of goods" (his words) "not the consumption of goods" (my words). In Fredspeak, "consuming your way to prosperity makes about as much sense as whoring your way to celibacy." Prosperity comes by increasing your wealth-not by increasing your debt.

Think about the employment/jobs mess we are facing. Will outsourcing service jobs, or shifting manufacturing jobs to anyplace other than US locations, do one thing to mitigate our dependence on foreign products? While our Middle East decisions are driven by our dependency on oil, our shopping decisions are driven by what's available-and what's available is driven by what's cheap! A worker in Mexico costs 1/7th per hour what a worker in the US costs; a worker in China costs 1/20th per hour what a worker in Mexico costs.

We are also dependent on foreign capital. We need almost one and a half billion dollars a day in new foreign capital to keep the American ball rolling and "growing." While this in part is due to the dependence on foreign oil and products, we also look to foreign "investors" to fund the rollovers of our existing debt. We even borrow to pay the interest we owe on the debt we already have! This "capitalizing interest" is illegal for banks; but not so for the US Government.

Think about the financial mess we are facing. The Central Banks of foreign governments now hold almost 50% of outstanding US Treasury securities. At the FDIC/RTC, I learned that when you owe a million, you have a lender; but when you owe a billion, you have a partner. If you are Uncle $ugar and owe trillions, you have what? A Board of Directors who head the World's Central Banks? Where does that leave Greenspan and our Federal Reserve Bank?

Enjoy your 4th of July holiday picnics and Independence Day weekend fireworks displays, but remember that the really big fireworks from our dependencies are clearly yet to come.