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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.
Peter D. Schiff
President/Chief Global Strategist
Euro Pacific Capital, Inc.
20271 Acacia Street, #200 Newport Beach,
CA 92660
Toll-free: 888-377-3722 / Direct:
203-972-9300 Fax: 949-863-7100
www.europac.net
pschiff@europac.net
Peter Schiff is president of Euro Pacific Capital and host of The
Peter Schiff Show.
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