by D. Vogt

Created on: August 08, 2010

In August 2010, the U.S. Postal Service announced its fiscal returns for the third quarter as well as its projections for the upcoming year. In its announcement, the Postal Service confessed that it was concerned with future liquidity because of its legal obligations to fund health care needs of its employees several years in advance, combined with losses due to declining mail. Indeed, in the last quarter, the postal service already lost $3.5 billion.

Officially, the USPS is a government independent agency rather than a government-owned corporation, with a board almost entirely filled by Presidential appointments. Nevertheless, in its regular operations it functions more or less as a corporation does, taking in payments for its mail services and attempting to break even by doing so. In this capacity the postal service employees more people than every other corporation in America except Wal-Mart. Nearly half of all mail in the world passes through a USPS facility. It holds a legal monopoly and a legal obligation (the so-called universal service obligation) on providing letter mail to mailboxes across the country, at fixed prices, for all American residents. This does not extend to all carriage or delivery of packages to individual or corporate recipients (as opposed to mailboxes), however, and private couriers do specialize in providing more rapid service.

Despite its size, however, the USPS has had difficulty making money. In its August quarterly report, it admitted to losses of $3.5 billion over the past three months, over and above revenue of $16 billion. The loss was not new: the USPS has only broken even in two quarters in the last four years. This is mostly due to the massive decline in postage following increases in digital communication. Overall mail levels fell 13% during the credit crisis, and continue to fall by 1.7% year-over-year. The USPS is now attempting to recoup some of the losses through stamp price increases and a proposal to eliminate Saturday service.

Technically, however, these losses are only contributing factors to what the USPS refers to as its liquidity problem. Liquidity refers to the ability of a corporation or agency (or individual, for that matter) to make debt payments with cash and other assets can be immediately used to make payments. When the USPS says it is concerned with future liquidity, what it means that it is concerned it will not have the cash on hand to make upcoming payments. In September, the USPS is due

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