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How the Post Office can save America: A Quartz data essay

US postal service
AP Photo / Ben Margot
Mailboxes lined up for disposal. But there might be use for the Postal Service yet.
By Matt Phillips
AmericasPublished Last updated This article is more than 2 years old.

First things first. The United States is never going to “pay back” its debt.

With an exception of a few years in the 1830s when the government was able to expropriate enough native American lands and sell them off at inflated prices, the US has been in debt since day one and will remain so.

But the debt is big. Some $16.4 trillion, when measured most broadly. That’s about 100% of economic output. A debt this large could very easily become problematic.

Luckily, we think we’ve found one small part of the solution: America’s beleaguered Postal Service.

Allow us to explain.

Problem 1.) Americans aren’t mailing as much stuff as they once did…

… And the post office is losing money—and is projected to lose a lot more.

Problem 2.) The US government has a ton of debt, about $16.4 trillion worth, which is bringing the country back to that debt limit again. (Though it looks like Washington is just going to ignore that for a while.)

…An awful lot of US debt is held by foreigners, more than $5 trillion at last glance…

Foreign holdings amount to about 50% of the US government debt that’s available to to be traded by the public, or a bit more than 30% of the total US debt load of more than $16 trillion. 

The large share of US debt held by foreigners is a big problem…

It exposes the US to the risk that foreigners essentially dump US government debt if they start seeing things they really don’t like—like, say, an ongoing inability to accomplish basic government tasks such as finding sensible agreements on taxing and spending. True, US government debt is still the pre-eminent destination for the world’s savings. But a buyers’ strike isn’t impossible. (Until about two years ago, Italy—the world’s third-largest bond market—was considered a completely safe place to stash money. That changed and Italy’s economic fate has essentially been at the mercy of financial markets over much of the the last couple years.)

Countries can mitigate the risk of a buyers’ strike. One thing they can do is shift their borrowing to longer-term debt. This changes something known as the “weighted average maturity” of the debt load. Essentially, it gives the government the ability to refinance its debt load over a longer time, rather than being forced to do it sometime soon. The chart below shows the US has been doing that, ever since being forced to borrow a lot of short-term cash during the financial crisis.

…Another thing that would protect a country from financial markets turning on it is borrowing money from its own citizens rather than from foreigners.

Take Japan for instance. More than 90% of Japan’s government debt is held domestically. Only 5% is held by non-residents, according to this IMF paper.

That strong domestic base of buyers is one of the reasons why Japanese bond yields have stayed low, even as the country’s debt load gets crazier and crazier.

Just as a reminder, if investors were dumping government bonds in a market selloff, bond yields would spike. And they haven’t spiked; they’ve been low and stable for a long, long time. Just look.

“Wait! Wait!” you say, “Didn’t you start out by talking about the US post office?”

Yes, in fact we did. You’ll notice that in the pie chart above roughly 29% of outstanding Japanese debt is held by something called Japan Post Group. The Japan Post Group represents the various entities that were once part of Japan Post, the postal savings system that was, at its peak, the world’s largest financial institution. Japan made moves to privatize the post office in 2007. But the vast pool of savings built up by Japan’s postal system from citizens continues to help fund Japan’s debt. A range of other countries have postal savings, including KoreaFranceIsraelIreland, and India.

It’s high time that the US develop such a system. (We’re not completely alone on this, by the way. Also, here.)

“Wait wait!” you shout again. “That is downright un-American to have the government involved in the financial system like that.”


U.S. Postal Service

In fact, the US once had a rather robust postal savings system of its own.

Starting in 1911 this system of postal savings accounts provided an easy, safe place for consumers to build up their savings. Following the banking crises of the early 1930s—when many Americans lost their savings in bank busts—money poured into postal savings accounts. Postal savings peaked in 1947, when there was about $3.4 billion on deposit. That would be about $34 billion in today’s dollars.

Why do we need the government to do this? Don’t the banks already do it?

Well, yes. But with banks increasingly turning to fees to generate income in recent years, small savers have felt far from welcome. Take a look at the growth in income from fees on deposits at large US banks over the last 20 years, before the Dodd-Frank financial reform bill essentially forced them to knock it off.

Now we’re not suggesting that the nearly 550,000 US postal workers will be transformed into bankers overnight.

But the government should seriously think about using some elements of the far-flung, consumer-facing Federal presence that is the US Postal Service to help build a healthier pool of savings among Americans.

That’d be a welcome departure from recent years, when the US government has appeared to all but give up on tapping into consumer savings to fund the debt. For example, it stopped selling paper versions of savings bonds, driving would-be lenders to the US government to the Treasury Department’s electronic platform. (Because the grandparents just love e-commerce.) It’s high time the US turned this around and provided US consumers with a safe simple way to save. A partnership between the post office and the US Consumer Financial Protection Bureau could help the US make its debt load safer and perhaps turn around the fortunes of the Post Office. Oh, and it also may help the US remedy its egregious lack of savings.

Worth a thought, anyway.

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