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Saturday, October 17, 2009

A Post Office Bailout

This article was interesting.

Congress gave the Post Office an exemption from making payments into its pension fund, worth $4 billion. This isn't an explicit bailout, but it's an indirect bailout. If a private corporation skips a pension fund payment, then they will face penalties from the IRS or Department of Labor.

The Federal government is not subject to the same accounting rules as everyone else. If the Federal government runs a taxation surplus, then that is deflationary. If there's a deficit, that's inflationary. The Federal government issues its own money, enabling all sorts of funny accounting tricks.

That missed payment will have to be made up later. Retiree benefits for State employees are backed by the full taxation power of the State.

Due to inflation, the Post Office must continuously raise prices. The Post Office may only raise rates when approved by Congress.

Insiders at the Post Office successfully lobbied for a law saying "The mail rate may be increased each year based on inflation, with the CPI as the inflation index." This is a problem, because the CPI is less than true inflation. The "solution" of giving the Post Office automatic rate increases made their budget problems worse!

Because the Post Office already has an "inflation"-linked price increase, it's hard to get other price increases approved by Congress.

As long as the Post Office is forced to raise prices by less than the inflation rate, then they will have a deeper and deeper budget shortfall.

The Post Office has an explicit State-backed monopoly. It's illegal for me to operate my own first class mail business that competes with the Post Office. With the use of E-Mail and the ability to pay bills electronically, there's not much demand for physical mail. The Post Office has an explicit State-backed monopoly, but you don't have to use physical mail for most things.

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