Sovereign Man - Notes From the Field

http://www.sovereignman.com/
September 19, 2014
Santiago, Chile

It was known as Directive 10-289, and it was the government's last-ditch, desperate effort to control the collapsing economy.

The President, along with some of his senior advisors at the Bureau of Economic Planning and National Resources, all widely agreed that the only way out of the crisis was expand government power.

The directive was passed quickly, and among its key provisions:

"Point One. All workers, wage earners and employees of any kind whatsoever shall henceforth be attached to their jobs and shall not leave nor be dismissed nor change employment. . ."

"Point Two. All industrial, commercial, manufacturing and business establishments of any nature whatsoever shall henceforth remain in operation, and the owners of such establishments shall not quit nor leave nor retire, nor close, sell or transfer their business. . ."

If you're searching through your favorite news feed right now wondering why you haven't heard of Directive 10-289, it's because the law is fictitious. It's part of the story from Ayn Rand's Atlas Shrugged.

At that part in the book, the economy was in a full blown crisis.

The government had engineered one emergency after another, and their only idea to 'fix' things was to award themsleves even more power and control over the economy... specifically to freeze everything in place.

No one could be fired or quit his/her job. And no business could stop working. It didn't matter how much money they were losing.

Crazy idea, right? This could never happen in reality... at least not in the West. It sounds like something straight out of the Soviet Union-- forcing unprofitable companies to stay in business.

Enter H.R. 5445, the "Postal Jobs Protection Act of 2014".

I was utterly stunned when I read this. The meat of the bill consists of just 26 words:

"Notwithstanding any other provision of law, no mail processing facility operating as of September 1, 2014, may be closed or consolidated prior to December 31, 2015."

Let that sink in a minute: they want to pass a law to ensure that NO US postal center can be shut down through the end of next year.

For the sake of context, let's walk through the numbers.

In its most recent quarter, the US Postal Service lost a massive $1.9 BILLION. That's far worse than the $699 million loss they rack up over the same quarter last year.

And so far this fiscal year, USPS has lost over $4 billion.

What's more-- the post office has maxed out its $15 billion credit line. They have almost no liquidity left to continue financing operations, they're not profitable, and they have no capacity left to borrow more money in order to plug the shortfall.

Perhaps most alarming is that, according to the US Postal Service's own financial statements, its NET worth (i.e. assets minus liabilities) is NEGATIVE $44 billion.

This doesn't happen by accident. And it's not the result of some temporary downturn. It takes years... decades of mismanagement and structural issues to reach this point.

Just for kicks, I compared 2-day shipping rates among major carriers in the US for a simple envelope package.

FedEx: $25.12
UPS: $24.16

And the US Postal Service? $5.05 if I order online.

Duh. It doesn't take a rocket scientist to see the problem here.

Bear in mind that FedEx and UPS are, you know, profitable, earning $3.3 billion and $6.7 billion in pretax income, respectively. (And they each paid an effective tax rate of more than 35%.)

Curiously, when I was in Ethiopia a few weeks ago, there was an article in the local paper there about how profitable the Ethiopian postal service had become.

I mean-- postal services around the world have the same problems. A place like Ethiopia has a massive rural population, and it costs a lot to maintain those small offices. Everyone face rising fuel costs and declining volume.

Yet even in Ethiopia they've figured it out. They know they can't continuously run an unprofitable operation, so they reinvent the business model. That's life.

In fairness, the Postal Service knows what to do. They're at the end of their rope. And if they're going to survive, they need to raise revenue and cut costs dramatically.

This includes the uncomfortable prospect of laying off employees and closing down unprofitable processing centers.

But Congress doesn't want that. And they're lifting legislation directly from the pages of Atlas Shrugged to ensure the post office keeps operating at a loss.

This is yet another example of incredibly dangerous central planning being planned, proposed, or in progress in the Land of the Free.

Can you see where this trend is going?

Have a great weekend,

Simon Black