Trouble at the Post Office: Defaults Start Today

Posted: Aug 01, 2012 6:20 PM
The U.S. Postal Service is reaching a crisis point as they are now defaulting on legally mandated healthcare payments for future retirees.

The U.S. Postal Service is bracing for a first-ever default on billions in payments due to the Treasury, adding to widening uncertainty about the mail agency's solvency as first-class letters plummet and Congress deadlocks on ways to stem the red ink.

With cash running perilously low, two legally required payments for future postal retirees' health benefits - $5.5 billion due Wednesday, and another $5.6 billion due in September - will be left unpaid, the mail agency said Monday. Postal officials said they also are studying whether they may need to delay other obligations. In the coming months, a $1.5 billion payment is due to the Labor Department for workers compensation, which for now it expects to make, as well as millions in interest payments to the Treasury.

The financial crisis at the U.S. Postal Service was entirely predictable. Demand for their product has fallen rapidly in the internet age. Government control has prevented the Postal Service from acting like a rational business. Consequently, the Postal Service cannot immediately reduce their costs in a meaningful way. Acting independently, the Postal Service may have well closed down offices and stopped providing service on Saturdays by now. But as a government entity, the Postal Service will either become insolvent or require a taxpayer bailout.

This post was authored by editorial intern Kyle Bonnell