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Forever Stamps Tell Us Much
Financial Sense ^ | Fri, 31 Dec 2010 | by Peter D Schiff

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.


TOPICS: Business/Economy; Culture/Society; Government; News/Current Events
KEYWORDS: schiff; schifflist
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The US government can also default on its obligation by repudiating its promise.
1 posted on 01/01/2011 9:21:47 AM PST by DeaconBenjamin
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To: DeaconBenjamin

Just sell the damn post office to ups and fedex and forget about it.


2 posted on 01/01/2011 9:25:04 AM PST by org.whodat
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To: DeaconBenjamin
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.

Not really. The USPS could simply refuse to honor the Forever stamp in the future.

3 posted on 01/01/2011 9:25:54 AM PST by Skepolitic
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To: org.whodat

The Postal Carriers Union would never allow it.


4 posted on 01/01/2011 9:26:41 AM PST by The Sons of Liberty (Psalm 109:8 Let his days be few and let another take his office. - Mene, Mene, Tekel, Upharsin)
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To: DeaconBenjamin

Costs (wages, fuel, etc.) go up while volume of business goes down.


5 posted on 01/01/2011 9:27:26 AM PST by reg45
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To: DeaconBenjamin

Isn’t this the second set of forever stamps? I recall they did this two years ago as well.


6 posted on 01/01/2011 9:27:31 AM PST by edcoil ("The only winning move is not to play")
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To: DeaconBenjamin

Clever way to jack up postal rates regularly without the usual public outrage.


7 posted on 01/01/2011 9:30:22 AM PST by Zman516 (muslims, marxists, communists ---> satan's useful idiot corps)
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To: DeaconBenjamin

Guys, forget the diamond, stamps are forever.


8 posted on 01/01/2011 9:30:30 AM PST by sbMKE
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To: DeaconBenjamin

put it to sleep,,,


9 posted on 01/01/2011 9:30:36 AM PST by gunnyg (WE ARE BEHIND "ENEMY WITHIN" LINES, SURROUNDED, November? Ha! ...So Few Can "grok" It.)
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To: DeaconBenjamin

Who, in their wildest dreams, would have thought this possible? Absolutely amazing!


10 posted on 01/01/2011 9:31:15 AM PST by Sunshine Sister
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To: DeaconBenjamin

You only “save “ money if you use the thing. As long as you hold onto it, the post office is making out.


11 posted on 01/01/2011 9:31:17 AM PST by Fido969 ("The hardest thing in the world to understand is income tax." - Albert Einstein)
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To: DeaconBenjamin
Given these stamps will always be completely liquid

Guaranteed? What if Congress makes resale illegal?

12 posted on 01/01/2011 9:32:24 AM PST by Clint Williams (America -- a great idea, didn't last. The only reasonable response to jihad is Crusade.)
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To: Skepolitic

They’d probably change the color of the stamps, and demand “Postage Due.”


13 posted on 01/01/2011 9:33:54 AM PST by Dr. Bogus Pachysandra ( Ya can't pick up a turd by the clean end!)
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To: DeaconBenjamin

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.


14 posted on 01/01/2011 9:37:15 AM PST by sodpoodle (Despair; man's surrender. Laughter; God 's redemption.)
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To: DeaconBenjamin

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


15 posted on 01/01/2011 9:40:46 AM PST by RnMomof7 (Gal 4:16 asks "Am I therefore become your enemy, because I tell you the truth?")
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To: DeaconBenjamin

Another result of this change is that people will no longer know how much it costs to mail a letter.


16 posted on 01/01/2011 9:41:41 AM PST by keats5 (Not all of us are hypnotized.)
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To: DeaconBenjamin
Leave the one cent stamp alone!

Photobucket

17 posted on 01/01/2011 9:42:14 AM PST by KJC1
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To: edcoil
Isn’t this the second set of forever stamps? I recall they did this two years ago as well.

I didn't realize they'd stopped making them. Shows how often I buy stamps.

18 posted on 01/01/2011 9:44:27 AM PST by cantfindagoodscreenname (I really hate not knowing what was said in the deleted posts....)
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To: Skepolitic; muawiyah

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.


19 posted on 01/01/2011 9:46:17 AM PST by Gondring (Paul Revere would have been flamed as a naysayer troll and told to go back to Boston.)
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To: cantfindagoodscreenname

Or, how stupid or short memory we have.


20 posted on 01/01/2011 9:51:17 AM PST by edcoil ("The only winning move is not to play")
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To: Zman516

The basis for this is the Postal Accountability and Enhancement Act, which keeps rate increases below inflation. The first forever stamps came out right after President Bush signed it, and this is the way the USPS can tie their fortunes to what they can charge. Many other countries have already gone this route.

It’s not so much a sign of the USPS but of the overall situation. But if you’d bought stamps with a set denomination, that amount would have been victim to inflation and more postage would have been required. You get a better deal now buying a first class stamp than you would have back in the 1970s—or by using old stamps on it (very expensive, as you lose all the inflation benefits).
With inflation adjustments, first-class letter postage is about 10-15% lower in cost than back then.


21 posted on 01/01/2011 9:55:58 AM PST by Gondring (Paul Revere would have been flamed as a naysayer troll and told to go back to Boston.)
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To: DeaconBenjamin
"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 is a massive unauthorized LOAN.

22 posted on 01/01/2011 9:57:03 AM PST by blam
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To: DeaconBenjamin
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?

You can already buy forever stamps at a discount on Ebay. Shop now (enter "forever stamps") and among other offers you'll find a "Buy it now" price of $2 for 5 stamps with free shipping.

23 posted on 01/01/2011 9:57:59 AM PST by Spartan79 (Malo periculosam libertatem quam quietam servitutem.)
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To: Skepolitic
Not really. The USPS could simply refuse to honor the Forever stamp in the future.

Or decree that the "Forever" stamp is only worth 45 cents when they hike rates again, and force people to buy 1 cent or 5 cent stamps to make up the rate hike.

24 posted on 01/01/2011 10:00:16 AM PST by PapaBear3625 ("It is only when we've lost everything, that we are free to do anything" -- Fight Club)
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To: RnMomof7
If USPS rates had kept up with inflation for the past 30 years (from, say, the 13-cent stamps of the 1970s), the cost would be over 50¢ by now.

I think that a well run government should have a government-run postal system that provides security in the form of the US police and military, rather than having to rely on private couriers alone. There should be no complaints about competition from private groups, and no more stupid sponsorships of biking teams, etc., though.

25 posted on 01/01/2011 10:03:25 AM PST by Gondring (Paul Revere would have been flamed as a naysayer troll and told to go back to Boston.)
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To: DeaconBenjamin

Don’t these stamps represent a future service obligation to the USPS? The stamp you buy today for 44 cents will be valid for postage even if the rate for a first class stamp goes to over a dollar or more. If presumably the rate for a first class stamp is related to the cost of delivery, the USPS would be delivering letters using the forever stamp at a significant loss. Granted the revenue from these stamps could be held in escrow at interest, but the cost of delivery has gone up at rates far above current interest rates.


26 posted on 01/01/2011 10:04:08 AM PST by The Great RJ (The Bill of Rights: Another bill members of Congress haven't read.)
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To: Clint Williams
For current stamps, there is no way to track purchase versus current user of the stamp. And if resale is illegal, the stamps make great charity donations to politically incorrect non-profits.

If it gets so bad that the government puts unique RFID chips tagged to the postage purchaser's history to usage, we've already got chips up our own (pick a creative term here).

27 posted on 01/01/2011 10:06:14 AM PST by tbw2 (Freeper sci-fi - "Sirat: Through the Fires of Hell" - on amazon.com)
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To: DeaconBenjamin

“During that time the stamp prices have gone up more than 1,100%”

Still sending a letter under $0.50 anywhere in USA is pretty cheap. USPS has been hit hard by the internet (online billing, emails etc), and the e-commerce hasn’t picked up the slack. They have to use their infrastructure to compete with Fedex and USPS.


28 posted on 01/01/2011 10:07:28 AM PST by mewykwistmas
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To: DeaconBenjamin
For almost 100 years the price of a stamp remained stable.
And then in the last 50 years ... bang-zoom! Can't wait for gov't h/c ...


29 posted on 01/01/2011 10:08:22 AM PST by oh8eleven (RVN '67-'68)
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To: Sunshine Sister

Are there any 401K plans with a Forever Stamp fund?


30 posted on 01/01/2011 10:11:36 AM PST by glorgau
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To: blam
This is a massive unauthorized LOAN.

It strikes me that way, of course, but I am conservative in my financial dealings. People are calling for the USPS to operate like a business. Well, a private business is not required to put gift-certificate proceeds into escrow.

In fact, by suggesting people buy postage in large quantities in advance, it increases the chance that some will be lost. Every lost or destroyed stamp is revenue without obligation*, or nearly pure profit, if we figure a replacement stamp will be needed. So "every forever stamp sold today represents a stamp not sold in the future" is not technically correct and I'd be willing to bet that difference is significant.

This was a lame-duck thing from the Republican Congress of 2006 after they were voted out of office, IIRC. It was signed by George W. Bush a little over four years ago.

And the costs of the stupid Sarbanes-Oxley Act are also dumped on the USPS now, just like for businesses. I know how much SOX has bled businesses I work with, so I can only imagine the costs to the USPS.


*I'm not sure if those terms are the appropriate jargon, but I'm not trying to use them in a technical sense--I'm not an accountant, etc..

31 posted on 01/01/2011 10:14:01 AM PST by Gondring (Paul Revere would have been flamed as a naysayer troll and told to go back to Boston.)
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To: Gondring
All things considered the "forever stamps" ~ the idea of an old buddy of mine BTW, make as much sense as the ONE PRICE PRIORITY MAIL or EXPRESS MAIL cartons.

They reduce handling costs tremendously, and you no longer have to teach people how to count to use them. That task can be left to the public schools and institutions!

32 posted on 01/01/2011 10:15:22 AM PST by muawiyah
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To: oh8eleven
Yes, you make a good point--the USPS has raised rates slower than inflation, so it's a better deal than in the past. (Sorry that the graphs don't line up right but I'm not going to take the time to rescale it. :-)




33 posted on 01/01/2011 10:20:35 AM PST by Gondring (Paul Revere would have been flamed as a naysayer troll and told to go back to Boston.)
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To: Gondring
the USPS has raised rates slower than inflation
Can't argue but I would imagine labor costs consume most of the increases - certainly over the last 10 years, probably the last 30.
34 posted on 01/01/2011 10:25:30 AM PST by oh8eleven (RVN '67-'68)
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To: Fido969
You only “save “ money if you use the thing. As long as you hold onto it, the post office is making out.

I didn't see Mr. Schiff making the point explicitly, but the idea is that the stamps become a commodity that is highly liquid, almost and in extremis an alternate currency.

So the idea will be to hold and trade the stamps, not primarily to use them for postage.

Derivative markets could even be created for the forever stamp. True, there would be a risk of organized markets in these things going south (along with all other organized capital exchange), but this is probably on the same order of risk as the Post Office itself going out of business or repudiating the stamps.

The situation seems exactly analogous to gold and silver coins.

35 posted on 01/01/2011 10:30:05 AM PST by Erasmus (Personal goal: Have a bigger carbon footprint than Tony Robbins.)
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To: org.whodat

Right. There is no reason for the government to be propping up the post office. My mail is never delivered in the morning and once didn’t get here before 6PM last week.

If the local liberal rag had the franchise, my mail could have been here before daylight in a plastic bag on my lawn.

lol.


36 posted on 01/01/2011 10:32:26 AM PST by GeronL (#7 top poster at CC, friend to all, nicest guy ever, +96/-14, ignored by 1 sockpuppet.. oh & BANNED)
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To: sodpoodle

The post office spent many millions on magazine sorting machines that sit unused because the unions didn’t want to lose their jobs.


37 posted on 01/01/2011 10:35:28 AM PST by GeronL (#7 top poster at CC, friend to all, nicest guy ever, +96/-14, ignored by 1 sockpuppet.. oh & BANNED)
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To: muawiyah
the idea of an old buddy of mine BTW

Are you talking back in 1975 for the A-series, or the UK permanent NVIs in the 80s?

BTW, make as much sense as the ONE PRICE PRIORITY MAIL or EXPRESS MAIL cartons.

It's funny that we're gone back to NVIs after so many of us used them in our childhood playing "post office". But with the economy the way it is, it makes sense.

38 posted on 01/01/2011 10:36:02 AM PST by Gondring (Paul Revere would have been flamed as a naysayer troll and told to go back to Boston.)
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To: Spartan79
You can already buy forever stamps at a discount on Ebay

After spending some time there, I'd say that's certainly an interesting category of eBay. There are folks selling single stamps near face value with free shipping. WTF?? And they have thousands of positive feedback transactions so this is definitely legit.

39 posted on 01/01/2011 10:36:39 AM PST by nascarnation
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To: oh8eleven
Good graph:

It's amazing to see that long stable time from the 1930s to nearly the 1960s, as inflation slowly dropped the cost of postage.

Can't argue but I would imagine labor costs consume most of the increases - certainly over the last 10 years, probably the last 30.

It's certainly would make sense, as that and fuel and compliance are some of the major increases for similar businesses, I imagine.

40 posted on 01/01/2011 10:40:44 AM PST by Gondring (Paul Revere would have been flamed as a naysayer troll and told to go back to Boston.)
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To: nascarnation

Well, there was that guy who bought something like 20,000 of them as an “investment”...


41 posted on 01/01/2011 10:44:51 AM PST by Gondring (Paul Revere would have been flamed as a naysayer troll and told to go back to Boston.)
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To: nascarnation

Also remember that the Do Not Call list doesn’t matter if you have a business relationship...which is why there are so many “free” offers out there, just to get your contact info opened up to marketing.


42 posted on 01/01/2011 10:50:30 AM PST by Gondring (Paul Revere would have been flamed as a naysayer troll and told to go back to Boston.)
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To: DeaconBenjamin

44¢ to send a letter across country is a bargain to me.

(Your opinions most likely will vary)


43 posted on 01/01/2011 10:55:53 AM PST by Graybeard58
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To: Gondring

Actually modern US postage rates are a good deal historically speaking.

In 1847 (when the US issued its first postage stamps) it cost 5 cents to mail a 1/2 ounce letter, 300 miles or less (over 300 miles cost 10 cents). Adjusting for inflation, those same letters today would cost $1.14 or $2.28 respectively.

Our postage rates are actually at a minimum, less than half of what Americans paid before the mid-19th century. Early 19th century US Postal rates were even higher.


44 posted on 01/01/2011 11:18:18 AM PST by XRdsRev (New Jersey - Crossroads of the American Revolution)
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To: DeaconBenjamin
the same Feds that pay 1.6 cents to make and ship a penny and 9.5 cents to mint & ship a nickel.
the last batch of pennies to be minted will be in 2011.
45 posted on 01/01/2011 11:36:06 AM PST by stylin19a
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To: Gondring
"In fact, by suggesting people buy postage in large quantities in advance, it increases the chance that some will be lost. Every lost or destroyed stamp is revenue without obligation*, or nearly pure profit, if we figure a replacement stamp will be needed."

Good thinking...I hadn't thought of that. It's like an un-used gift card. ($2+ billion gift cards are unused annually in the US)

46 posted on 01/01/2011 11:58:26 AM PST by blam
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To: Gondring
"In fact, by suggesting people buy postage in large quantities in advance, it increases the chance that some will be lost. Every lost or destroyed stamp is revenue without obligation*, or nearly pure profit, if we figure a replacement stamp will be needed."

Good thinking...I hadn't thought of that. It's like an un-used gift card. ($2+ billion gift cards are unused annually in the US)

47 posted on 01/01/2011 11:58:29 AM PST by blam
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To: Gondring

I have wondered about that. It seems, based on what I have read, and your information about this Act, that the way to make a real profit on these is to buy a bunch right before an announced rate hike, then resell them immediately.
I wonder if this article was written by someone here:
http://shop.ebay.com/?_from=R40&_trksid=p5197.m570.l1313&_nkw=forever+stamp&_sacat=See-All-Categories

Nothing really prevents a default on these, so I would not want to by thousands of dollars worth.

Happy New Year


48 posted on 01/01/2011 12:15:39 PM PST by Apogee
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To: blam

‘zactly


49 posted on 01/01/2011 12:25:22 PM PST by Gondring (Paul Revere would have been flamed as a naysayer troll and told to go back to Boston.)
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To: Apogee
But why spend $9.99 on ebay for $8.80 of stamps

buy a bunch right before an announced rate hike, then resell them immediately.

If you find buyers...will they be redeemable at the new rate? I doubt it.

50 posted on 01/01/2011 12:30:27 PM PST by Gondring (Paul Revere would have been flamed as a naysayer troll and told to go back to Boston.)
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