Posted on 01/01/2011 9:21:45 AM PST by DeaconBenjamin
The United States Postal Service announced this week that all future first class postage stamps sold will be the so-called "forever stamps" that have no face value but are guaranteed to cover the cost of mailing a first class letter, regardless of how high that cost may rise in the future. Currently these stamps are sold for 44 cents, but will increase in price if and when the Post Office hikes rates.
Apart from sounding the death knell of the one cent stamp, the news is interesting on two fronts: it provides insight into remarkably irresponsible government accounting, and it provides investors with the most attractive Federally-guaranteed inflation protected asset available on the market today.
Over the past fifty years, the USPS has raised the rates on first class postage 20 times. During that time the stamp prices have gone up more than 1,100%. Given the increasing frequency of rate hikes (three in the last four years) the Post Office claims it made the move to forever stamps to save money on printing costs and to increase customer convenience. The public seems to appreciate the product and has snapped up a staggering 28 billion forever stamps since they became available in 2007.
But the real reason behind the permanent switch is that it allows the Post Office to hide its insolvency behind phony accounting numbers, setting itself up for a massive taxpayer financed bailout in the not too distant future.
Much the way Greece used phony accounting to qualify for euro zone inclusion, the USPS is using creative accounting to avoid making significant cuts in current wages and benefits. By offering forever stamps, the Post Office moves forward future revenues to pay current expenses. But every forever stamp sold today represents a stamp not sold in the future. The revenues booked now will not be put in escrow to deal with revenue shortfalls that are guaranteed to plague the Post Office in the years ahead. This simply kicks farther down the road any intractable fiscal problems that the USPS can't solve through more conventional means.
The Post Office also ignores that their ability to sell higher priced forever stamps in the future will be restricted. Those individuals and institutions who hoard the stamps now could offer them for sale in competition with the Post Office. Even though the Post Office will not redeem forever stamps for cash, there is no law against reselling them for whatever price the market will bear. How many forever stamps will the Post Office be able to sell at full price if customers can buy them at a discount on Ebay?
On that note, forever stamps provide the most conservative investors with a much more attractive alternative to zero interest checking accounts, low yielding Treasury bonds, or even inflation protected government securities (known as TIPS).
Given these stamps will always be completely liquid, the only way an investor can lose money on forever stamps is if the price of postage goes down. There may not be a single human on the planet who thinks that this is a likely scenario. On the other hand, if postage rates rise with inflation then the stamps are a very, very safe bet.
And unlike Treasury bonds or TIPS, investors do not have to pay a premium above face value for the privilege of buying stamps. While it is true that stamps do not pay interest, the extremely low rate offered by government securities should not fundamentally alter the investment calculations comparing bonds with stamps. More significantly, stamps are backed by an actual tangible service, postal delivery, whereas U.S. Treasury debt is backed by nothing but a printing press.
Forever stamps are about as close to a sure thing as most people will ever get. Over the past 10 years stamps are up 29%, while the S&P 500 is up a measly .1%. With labor and other costs continuing to mount inside the Post Office, there can be little doubt that many price hikes are coming. Minimum investment in forever stamps is just 44 cents, with no brokerage fees. Plus as an added bonus, if you use the stamps yourself, you pay no income tax on your capital gains.
Sure, without a federal bailout there is a chance the Post Office will go under, and those forever stamps will end up lining bird cages. However, given the track record of government bailouts and the clout of unionized postal workers, chances are very high that the Post Office will always get the bailouts it needs. As a result, forever stamps are a better bet than Treasury debt. They also have prettier pictures.
Just sell the damn post office to ups and fedex and forget about it.
Not really. The USPS could simply refuse to honor the Forever stamp in the future.
The Postal Carriers Union would never allow it.
Costs (wages, fuel, etc.) go up while volume of business goes down.
Isn’t this the second set of forever stamps? I recall they did this two years ago as well.
Clever way to jack up postal rates regularly without the usual public outrage.
Guys, forget the diamond, stamps are forever.
put it to sleep,,,
Who, in their wildest dreams, would have thought this possible? Absolutely amazing!
You only “save “ money if you use the thing. As long as you hold onto it, the post office is making out.
Guaranteed? What if Congress makes resale illegal?
They’d probably change the color of the stamps, and demand “Postage Due.”
Cogent speculation - but businesses use machines, not individual stamps. The general public only purchases stamps in volume for special mailings (Easter, Christmas & Valentines) and probably many are misplaced before the next occasion.
E-mail is taking over communications and the remaining letter writers are a dying breed. The only niche left are the philatelists.
Don’t see mass hoarding of ‘forever’ stamps - but it does make sense for the Post Office to curtail printing costs.
I am sad at the demise of postal services.. Almost no one sends letters or cards anymore..
My little grandchildren get so excited when something comes in their name.. it is so much more significant than an e card..
But the postal service is quickly making itself irrelevant because of cost
Another result of this change is that people will no longer know how much it costs to mail a letter.
I didn't realize they'd stopped making them. Shows how often I buy stamps.
USPS rates have increased slower than inflation over the past 30 years. They would be a bad investment even if liquid and honored.
As some have pointed out, they aren’t even liquid. I tried to cash in some a while ago and they wouldn’t take them.
Or, how stupid or short memory we have.
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