Today is the first in a series of posts that I plan to write on sustainable energy. What, you may ask, does finding a sustainable source of energy have to do with financial planning?

I believe there is no greater threat to our long-term planning — both individually and as a nation — than finding a solution to the energy problem.

By “long-term” I mean my lifetime and that of my child’s. True financial planning considers not only how to fund your life and your lifestyle but what you are going to pass on to the next generation. I started thinking about what a financial plan for Uncle Sam would look like. Of course it’s a bit contrived, but it’s perhaps interesting to take a minute to think about what are his goals, his financial status, and his risk exposures.

What is the timeframe for your financial plan?

I’d like to think that Uncle Sam could take the long-term view to provide for me, my child, his children, and so on, for many generations. Can we assume that this plan is for 50 years? 100? 500? Perpetuity? The forces working against Uncle Sam’s long-term view is the, relatively, frequent turnover of his advisory team. Our representatives in Congress and the Executive branch undergo a popularity contest every two, four, or six years. Like corporate CEOs focused on quarterly profits, our representatives tend to seek short-term results, despite any good intentions.

What are your goals?

A concise statement of Uncle Sam’s goals include providing for the life, liberty, and pursuit of happiness for his citizens. I’d also like to think Uncle Sam would seek to be a good citizen of the world.

The net worth statement

I searched for, but could not find a value for the government’s assets. He currently carries $11.5 trillion in debt. I hope the net worth is positive, but I’m not sure

The cash flow statement.

Uncle Sam’s cash flow statement shows a few signs of trouble. One problem is his enormous trade deficit, $677 billion in 2008 — of which $268 billion is with China. In addition, he has an annual net trade imbalance of $167 billion with OPEC member nations, primarily in petroleum — a product over which he has little pricing leverage. While his top two leading sources for imported oil are friendly neighbors, Canada and Mexico, 50% of his total oil imports come from OPEC nations.

OPEC Member Balance of Trade with US ($ Billion)
Algeria -18.1
Angola -16.8
Ecuador -5.6
Iran 0.6
Iraq -20.0
Kuwait -4.3
Libya -3.5
Nigeria -33.9
Qatar 2.2
Saudi Arabia -42.2
United Arab Emirates 13.1
Venezuela -38.8
Total -167.3

Review of major risks and remediation plans.

Health insurance. Let’s not even go there. How to finance and deliver healthcare to all Americans is another tremendously important challenge facing Uncle Sam. But it is already the subject of 100 blogs.

Life insurance. How long will America be a sovereign nation? We have a solid 200 years under our belt, but nothing lasts forever (just ask the Romans). We certainly have geography on our side, with oceans to our east and west and single friendly nations to our north and south. An enviable position. We have significant natural resources, peace, economic stability, and a business-friendly legal system. Our culture prizes individual rather than group accomplishments, drawing in ambitious intelligent entrepreneurial immigrants from around the world. It would seem that we have all the ingredients for perpetual success, or as close to it as possible.

However, despite a wealth of natural resources, we are limited in oil. We consume 21 billion barrels of oil each day, yet we produce only 5 billion. We have built our economy around cheap and abundant petroleum. To continue to feed the innovation engine, we need to develop new sources of energy including solar, bio, wind, and others, in conjunction with improving our efforts in energy distribution and conservation.

I remember President Carter’s initiatives in response to the oil crisis in the 1970’s and how short lived they were once OPEC lowered its prices. I believe we missed a significant opportunity from the late 70’s through the 90’s to improve our energy production.

Reducing our dependence on foreign oil would:

  • reduce uncertainty about future prices (inflation), since we could control one of the major costs of production, energy,
  • improve our balance of trade,
  • reduce our reliance on nations that are not necessarily friendly to us. I wish America could be friends with all nations, just as I wish my son could be friends with everyone in his class. However, it is reasonable to suspect the intentions of the person who befriends you just because you have something they want, whether that be the latest LEGO toy or vast petroleum reserves,
  • reduce defense spending (see item above).

Recommendations to the client

Reduce dependence on foreign oil. This plan should include improvements in conservation, distribution, and generation.

I plan to post periodically on improvements I’d like to see in our nation’s energy program. I’d also like to hear your ideas on the same.

By day, Helen engineers new materials to make computer chips cheaper, better, and faster. When the son goes down (pun intended), she writes about personal finance at Affine Financial Services.

Image credit: Infrogmation at Flickr.