What the U.S. Postal Service Default Really Means

An employee places change of address labels onto mail at the U.S. Postal Service processing and distribution center in Merrifield, VA. Photograph by Andrew Harrer/Bloomberg

The U.S. Postal Service essentially went broke today. It skipped a $5.5 billion payment to the U.S. Treasury for future retiree health-care payments and said it would do the same early next month when another $5.6 billion is due. This comes as no surprise. The USPS has been losing $25 million each day, due in large part to the decline of first-class mail. But the service—which dates back to the days of Ben Franklin—now finds itself in uncharted territory.

The USPS issued a statement earlier in the week assuring the public that nothing much would change. “This action will have no material effect on the operations of the Postal Service. We will fully fund our operations, including our obligation to provide universal postal services to the American people,” it insisted. “We will continue to deliver the mail, pay our employees and suppliers and meet our other financial obligations.”

But make no mistake, the default has ramifications.

It demonstrates once again that Washington can’t come up with a solution for the crisis at the USPS, which has been metastisizing for more than a decade with the rise of the Internet. In April, the U.S. Senate passed a bill that would enable to the agency to reduce its head count from 550,000 to 450,000. But much to the chagrin of the postal service management, the bill would make it harder for the agency to close money-losing post offices and move from 6-day to 5-day delivery.

Meanwhile, the leaders of the Republican-controlled House have put off taking action on a bill that would take a more draconian approach to reducing the agency’s costs until after the election, because members are loath to the discuss post office closings in an election year.

That’s nothing new. In fact, it explains why the USPS is flailing in an era of e-mail and social media. None of this is lost on the postal service’s largest customers. They’re already exploring alternative means of delivery, and this will only spur them in those explorations. Businesses don’t like uncertainty—and the only thing certain about the USPS is that its problems won’t be fixed soon.

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