Postal Banking Update

USPS IG Report on Postal Banking

Last September I published a piece about postal banking with a link to an article by Public Banking’s Ellen Brown. Since that time, the Inspector General of the US Postal Service published a study of the feasibility of adding banking services to the millions of post offices around the country. The most shocking fact contained in this article published in the New Republic is that 68 million Americans are unbanked or have otherwise insufficient commercial banking services. This article reports that the study also found that these Americans pay an aggregate of $89B annually in excess interest and fees as a result of their lack of access to competitive commercial banks. This amounts to an average of 10% of income for those 68 million Americans.

What does all this have to do with investment advice, you might ask. As I pointed out in my earlier post, the financial markets (where the vast majority of investors invest) are not the economy but they are closely linked to it. In times of economic contraction, the financial markets usually decline. Therefore, economic growth has a positive impact on financial markets (usually) and that makes for growing investment portfolios. Providing tens of millions of households with access to financial services will help stimulate economic growth through lower borrowing costs and fees. How? Much of that $89B now lost to excessive interest and fees will now become disposable income to the unbanked; boosting consumer demand for goods and services.

Public Banking: An Engine for Economic Growth

Public Banking Presentation Nov 2013

This presentation is useful to show how the public bank of North Dakota, the Bank of North Dakota is a powerful engine for economic growth and to contrast this with Arizona which uses a commercial bank, by statute. Jim and Pam Hannley represent the Public Banking Institute in Arizona. We believe that a primary cause of economic stagnation in Arizona in general and in Tucson in particular is the inability of small businesses to borrow money from commercial banks at favorable rates. We are impressed by the way the Bank of North Dakota, through community banks extends credit to students, entrepreneurs, small businesses, and farmers. We invite interested parties to contact us to present our views to groups large and small.

A Postal Savings Bank?

A Postal Savings Bank: Infrastructure that Doesn’t Cost Taxpayers a Dime

Perhaps some would question why I am concerned with such broad issues as the minimum wage and public banking. I would answer that economic growth is important to investors because without it, our investments are speculative; not substantive.

When we invest in the stock of a company we do so because we anticipate the company to be yes, profitable at present but primarily that it will be profitable in the future. Our share of the company means that we have a stake in it; that we will share in its growth and prosperity. Presently, the US economy is experiencing a slow and rather anemic recovery from the most serious recession since the great depression. Trillions of dollars in investment capital and real estate capital were lost during the 2007-2008 recession. This was due to the fact that the largest banks in the country were speculating on securities that were veritably unquantifiable. We learned, post hoc that mortgages were bundled into lots of thousands and then sold in shares, primarily to large financial institutions such as Wall St. banks. To make matters worse, derivatives of these collateralized securities were created such as insurance policies against the insolvency of the mortgage holders underlying the securities, called credit default swaps.

The crisis came when it became apparent that the trading in these securities between the banks had become so enmeshed that the institutions became unsure of their value. A gridlock on Wall St. formed that threatened to bring down the entire economy. The crisis was precipitated by extreme speculation by the banks with depositors money at great risk of insolvency. We now know that the Treasury Dept., led by Hank Paulsen stepped in and, literally with scraps of paper handed to the bankers, solvency and certainty was restored. There is great debate and controversy about this still today.

That brings us to the simple but ingenious proposal contained in this article by Public Banking champion Ellen Brown. Using the existing Postal Service infrastructure, a very low cost and very safe banking service can be created. The article points out that 1 in 4 US households is unbanked. This marginalizes those households in many ways. It causes an unnecessary financial barrier to those households; a drag on economic growth.

At the same time, the US Postal Service which, surprisingly has had a net INCREASE in business due to the boom in online shopping could “…recapitalize itself by diversifying its range of services to meet unmet public needs”. To sweeten the proposal further, the capital formed by the depositors could be loaned to the US Government as “National Infrastructure” bonds, making the Post Office a National Infrastructure Bank, and idea that has wide bipartisan support.

We need every good idea to accelerate this lackluster recovery. This idea would not cost a single taxpayer dollar and save hundreds of thousands of Postal Service jobs. All that would be necessary is a Congressional nod to allow the USPS to expand the scope of its services.