January 2012, Week 2


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Mon, 9 Jan 2012 21:49:25 -0500
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Saving the Post Office: The Models of Kiwibank and
Japan Post 

by: Ellen Brown 
Monday 9 January 2012 
Truthout | News Analysis


[A Kiwibank at the Coastlands mall in New Zealand.
Photo: Finsec [3]]

Neither rain nor sleet nor snow may have stopped the
Pony Express, but the nation's oldest and
second-largest employer is now under attack [4].
Claiming the United States Postal Service (USPS) is
bankrupt, critics are pushing legislation that would
defuse the postal crisis by breaking the backs [5] of
the postal workers' unions and mandating widespread
layoffs. But the "crisis" is an artificial one, created
by Congress itself.

In 2006, Congress passed [6]the Postal Accountability
and Enhancement Act (PAEA), which forced the USPS to
put aside billions of dollars to pay for the health
benefits of employees, many of whom hadn't even been
hired yet. Over a mere ten-year period, the USPS was
required to pre-fund its future health care benefit
payments to retirees for the next 75 years, something
no other government or private corporation is required
to do. As consumer advocate Ralph Nader observed, if
PAEA had never been enacted, USPS would now be facing a
$1.5 billion surplus.

The USPS is a profitable, self-funded venture that is
not supported by the taxpayers. It is funded with
postage stamps - one of the last vestiges of
government-issued money. Stamps are fungible and can be
traded at par, and they are backed, not by mere
government "fiat," but by labor. One stamp will buy the
labor to transport your letter 3,000 miles.

The USPS is one of the few businesses the government is
allowed to operate in competition with private
companies; it is the only US agency that services all
its citizens six days per week; and it is perhaps the
last form of communication that protects privacy, since
tampering with it is against federal law. In 1999, the
US employed nearly a million people, and today, it
employs around 600,000. Where are those workers to go
when the post office is no more?

To Downsize or Diversify?

Whatever caused the financial woes of the USPS, there
is another way to mitigate the crisis than slashing
employee benefits and customer services. In a December
21, 2011, article [7], Tim Fernholz suggested that
instead of focusing on cuts, the post office should
approach the problem from a business perspective and
find a new way to make money. One way to keep the USPS
alive, he says, is for it to include basic banking
services in its product line, providing a "public
option" [8] in banking:

[R]oughly 9 million Americans don't have a bank account
and 21 million rely largely on fringe financial
services like usurious check cashers rather than
traditional financial institutions. Giving low-income
people access to a safe banking system will firm up
their economic futures.

The Proud, Forgotten History of Postal Banking

Banking in post offices is not new. Many countries,
including Germany, France, Italy, Japan and New
Zealand, have a long and successful history of it - and
so does the United States.

From 1911 to 1967, the US Postal Savings System
provided a safe and efficient place for customers to
save and transfer funds. It issued US Postal Savings
Bonds in various denominations that paid annual
interest, as well as Postal Savings Certificates and
domestic money orders. The US Postal Savings System was
set up early in the 20th century to attract the savings
of immigrants accustomed to saving at post offices in
their native countries, to provide safe depositories
for people who had lost confidence in private banks and
to furnish more convenient depositories for working
people than were provided by private banks. (Post
offices were then open from 8 AM to 6 PM, six days a
week, substantially longer than bankers' hours.) The
postal system paid two percent interest on deposits
annually. The minimum deposit was $1 and the maximum
was $2,500. Savings in the system spurted to $1.2
billion during the 1930s and jumped again during World
War II, peaking in 1947 at almost $3.4 billion.

The US Postal Savings System was shut down in 1967, not
because it was inefficient, but because it was
considered unnecessary after private banks raised their
interest rates and offered the same governmental
guarantees that the postal savings system had.

The Kiwibank Model: Postal Banks to Serve Local

Postal banks are now thriving in New Zealand, not as a
historical artifact, but as a popular new innovation.
When they were instituted in 2002, it was not to save
the post office, but to save New Zealand families and
small businesses from big-bank predators. By 2001,
Australian megabanks controlled some 80 percent of New
Zealand's retail banking. Profits went abroad and were
maximized by closing less profitable branches,
especially in rural areas. The result was to place
hardships on many New Zealand families and small

The New Zealand government decided to launch a
state-owned bank that would compete with the Aussies.
They called their new bank Kiwibank, after their
national symbol, the kiwi bird. But the government team
planning the new bank faced major challenges. How could
they keep costs low while still providing services in
communities throughout New Zealand?

Their solution was to open bank branches in post
offices. Kiwibank was established as a subsidiary of
the government-owned New Zealand Post. The Kiwibank web
site states:

Back in 2002, we launched with a thought: New Zealand
needs a better banking alternative - a bank that
provides real value for money, that has Kiwi values at
heart, and that keeps Kiwi money where it belongs -
right here, in New Zealand.

So we set up shop in PostShops throughout the country,
putting us in more locations than any other bank in New
Zealand literally overnight (without wasting millions
on new premises!).

Suddenly, New Zealanders had a choice in banking. In an
early "move your money" campaign, they voted with their
feet. In an island nation of only 4 million people, in
its first five years Kiwibank attracted 500,000
customers away from the big banks. It consistently
earns the nation's highest customer satisfaction
ratings, forcing the Australia-owned banks to improve
their service in order to compete.

Postal Banking Japan-Style: Funding the Government's
Debt With Its Own Bank

Another interesting model is Japan Post Bank [9], now
the largest publicly owned bank in the world.  Japan
Post is also the largest holder of personal savings,
making it the world's largest credit engine. Most money
today originates as bank loans, and deposits are the
magic pool from which this credit-money is generated.
Japan Post uses its excess credit power to buy
government bonds.  By 2007, it was the holder of
one-fifth of the nation's debt. As noted by Joe
Weisenthal, writing [10]in Business Insider in February
2010: "Because Japan's enormous public debt is largely
held by its own citizens, the country doesn't have to
worry about foreign investors losing confidence."

If the USPS were to add commercial banking to its
product line, it, too, could use its own bank-generated
credit to help relieve its debt problems. The USPS is
being forced to fund the health care costs of its
employees for 75 years into the future, and a large
portion of this unreasonable burden is composed of
interest charges. According to German researcher
Margrit Kennedy, interest composes on average about 40
percent of the cost [11] of all goods and services.
That suggests that eliminating interest could reduce
the USPS debt by about 40 percent. If the USPS became a
bank, it could use the credit generated from customer
deposits either to service its own debt directly -
something that would effectively be interest-free,
since it would own the bank and would get the profits
back - or by buying interest-bearing government bonds.
The interest earned on the bonds could then be used to
pay the interest on the USPS debt.

Other government agencies and local governments could
improve their balance sheets in the same way. Public
institutions with sizable capital and revenues can cut
their infrastructure costs by about 40 percent by
establishing their own banks, allowing them to avoid a
massive toll in interest to private banker middlemen.

The Post Office Deserves to Be Preserved

The USPS is a venerable institution that is older than
the Constitution. It should be saved, and it can be
saved. One way is to support HR1351 [12], a bill
introduced by Rep. Stephen Lynch (D-Massachusetts) to
repeal the Postal Accountability and Enhancement Act.

Another way is for the post office to combine mail
services with teller services, restoring the Postal
Savings System of an earlier era. The result could be
not only to save the Post Office, but also to establish
a competitive alternative to a runaway Wall Street
banking monopoly that even Congress seems unable to
control. Creative Commons License [13]

This work by Truthout is licensed under a Creative
Commons Attribution-Noncommercial 3.0 United States
License [13].


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