" I firmly believe it is OCD and has escalated to the granuloma stage because of stress from DH being gone for an extended period of time and me being gone for four days. He does not have mange, fleas, or ticks. "
Even one Demodex mite or flea can cause severe skin reactions. This is something else you need to rule out via veterinary diagnostic testing.
"He has been on food from Purina O.N.E. to grain-free Blue with no different results other than price tag. They are currently on Nutro Lamb & Rice because its the only food that makes a difference in our GSD's dry skin. He is a good, healthy weight and gets exercise."
None of these foods are novel protein or hydrolyzed protein, which are the only foods you can put dogs on to rule out food allergy/intolerance. Even the "grain-free" OTC foods do not have the strict ingredient regulation that prescription hypoallergic food has. It is recommended to try a novel protein/carb (I.e. Duck & Pea, Venison & Potato, Rabbit & Sweet potato) or hydrolyzed protein diet (Hill's ZD, Purina HA, Royal Canin has one also) for 8-12 weeks before determining that an animal does not have a food allergy/intolerance. Most of the time too, several diets are tried for an extended period of time before totally ruling out diet-responsive disease.
"I'll start with the Tea Tree Oil suggestion, then into doggie prozac. DH is deploying in January for several months, so I'm thinking that will be a big help in Dutch coping with him being gone for so long.[/QUOTE]"
This really sounds to me like he needs some systemic help from antihistamines or corticosteroids before trying something like prozac. I would strongly encourage you to seek help from your vet, who may refer you to a veterinary dermatologist.