Friday, 12 August 2011

08:56 – Colin turns 6 months old today. He’s a huge puppy, already as large as most adult male Border Collies. Duncan was a big boy, at 75 pounds (34 kilos) and about 4″ (10 cm) taller than other male BCs, but I think Colin will be bigger still.


The US Postal Service is losing $8 billion a year and is now in what amounts to Chapter 11 bankruptcy, or would be if it weren’t a pseudo-government agency. It’s due to make a $5.5 billion payment to its retirement fund next month which it doesn’t have the money to make. The USPS has announced plans to cut 220,000 jobs, or 30% of its workforce, between now and 2015. About 100,000 of those will be by attrition, but the remaining 120,000 will be actual people losing their jobs. It also plans to close thousands of post offices.

That’s actually much too little, much too late, and doing the wrong thing anyway. Service levels will be badly impacted by those cuts, which will in turn further reduce mail volume as mailers shift even more quickly to alternatives. What the USPS needs to do is:

1. Eliminate rural free delivery, which is extremely costly. Establish population-density metrics to determine whether any particular home or business is eligible for free delivery or must pick up its mail at the nearest post office.

2. Negotiate “last mile” delivery agreements with UPS and FedEx, whereby UPS and FedEx deliver packages to USPS distribution centers, and the USPS makes the local deliveries to the recipients. Eventually, eliminate most local deliveries by USPS personnel and negotiate contracts with local businesses for last mile deliveries. That is, the USPS should be making one delivery per neighborhood to a local contractor who actually delivers the mail and packages to homes.

3. Crush the postal unions and reduce pay and benefits to no more than a third of what they are now, for both current employees and retirees. Right now, post office employees are paid at least two to three times more than they’d earn for doing the same job in private industry. Retirement and medical benefits are ridiculously high. All of that needs to stop if the USPS is to have any chance of surviving.


Despite the protests of the Big Three credit-rating agencies and the French government, the market believes that France doesn’t deserve a AAA rating. And they’re absolutely correct. If the USA is only AA+, France should be at least two or three levels below that. Forget S&P and Moody’s and Fitch. If you want a real credit rating, all you need to do is look at what the free market says the credit ratings really are. That’s what the basis points on credit default swaps provide, and it’s instructive to look at CDS prices for the various countries.

Greece ~ 1,800
Portugal ~ 900
Ireland ~ 800
Italy ~ 400
Spain ~ 400
France ~ 150
Austria ~ 140
Germany ~ 90
UK ~ 85
US ~ 55

A basis point is 0.01%. These CDS prices vary constantly, but they represent the actual free-market cost to insure a bond against default. So, for example, the one-year premium to insure $1,000 of Greek bonds against default is $180, while at the other end of the risk spectrum, it costs only $5.50 to insure $1,000 of US debt for one year. That’s why it’s ridiculous for ratings agencies to assign AAA ratings to the UK, Germany, Austria, and France while assigning the US a lower rating. The free market gives the real ratings, and they’re completely out of line with what the ratings agencies are saying. I know which I trust more.


11:22 – This has been a stunning week for medical discoveries that are potentially huge breakthroughs. Earlier in the week, a PLoS paper reported incredible results with a process called DRACO, in which cells that have been infected by a virus (and only those infected cells) can be forced to undergo apoptosis, which kills the infected cells, leaving the viruses without host cells. The really significant thing about DRACO is that it is not virus-specific, like nearly all current antiviral treatments. Any cell that has been infected with any virus (presumably; DRACO was shown to be effective against 17 widely different viruses) is detected and eliminated. And here, Derek Lowe reports on a potential breakthrough that does pretty much the same thing against leukemia, and presumably eventually other cancers.

14 thoughts on “Friday, 12 August 2011”

  1. S&P did not lower the US credit rating for any real valid reason. S&P did not like the new regulations that were going to more tightly control their operation. S&P did it to themselves with the mortgage ratings. But S&P does not want to be controlled. So to get even with the US government S&P lowered the rating. In my opinion S&P ratings are worthless and the outfit should be destroyed.

  2. Absolutely. And what I didn’t mention was that 55 basis points is dangerously high in my opinion. I think an AAA rating, if it is to mean anything, should correspond to a CDS price of no more than 5 or 10 basis points. AAA is supposed to mean that there’s essentially zero risk of default.

    On that basis, I think an AA+ rating is actually fair for US debt. What’s wrong is that all of those other countries should be rated lower, some much lower. At 400 basis points, Spanish and Italian debt is basically junk. At 150 or so, Austrian and French debt should be considered speculative. Those countries near 100 basis points are, in my opinion, not investment grade, and the truth is that German and UK CDS prices are likely to be climbing significantly in the near future, to near where France is now.

    Money is currently flooding into US bonds, and there’s good reason for that. US bonds are the only real investment-grade instruments available, not counting those of a few countries that are too small to matter.

  3. “1. Eliminate rural free delivery, which is extremely costly. Establish population-density metrics to determine whether any particular home or business is eligible for free delivery or must pick up its mail at the nearest post office.”

    For me, this would be 3 mile, 15 minute round trip in my Jeep to pick up a 1st class letter today. If the above suggestion were implemented, driving would not be feasible; therefore, it would be a one hour round trip walk and how many hours in a line at my local post office, if not closed?

    OK, what we do have locally is a stream most mornings of illegal alien crimmigrants tossing throwaway flyers on our doorsteps. I wonder what role that they might fulfill in a new scheme of things? And, yes, they most likely do earn 1/3 less in gross hourly pay than do USPS carriers and not benefits to boot.

  4. I haven’t checked lately, but the last time I looked the average USPS employee cost something like $140,000 per year in salary and benefits. For what they do and the skill level required (I’m not sure they even require a high-school diploma) I think cutting those personnel costs to one third or less of the current level is actually quite reasonable. Don’t you?

    Illegal immigrants must get paid more than I thought.

  5. I do not understand why they do not raise the price of the first class stamp to 75 cents?
    And, why do they not get rid of bulk delivery? They should make all mail delivery to be first class.
    And2, consolidate all home delivery to community mailboxes. We have community mailboxes in our neighborhood and love them. The security alone of the locked mailbox is awesome.
    Rural delivery cannot be eliminated. Period. But it could be consolidated (and already is in many places).

  6. I think the cut to AA+ for the US is warranted. The US Government is currently spending $1.60 for every $1.00 it collects in taxes. That is unsustainable. Before this changes, we have to change Presidents. Germany and the UK should probably be AA and France should probably be AA-.

  7. Rural delivery cannot be eliminated. Period. But it could be consolidated (and already is in many places).

    Of course rural delivery can (and should) be eliminated. Free delivery should be available only within city limits, or within unincorporated areas that have population densities close to that of cities and suburbs. We also subsidize telephone service and Internet service to rural areas, and we should be doing neither of those. The effect of subsidies, as always, is to perpetuate inefficient and ineffective procedures simply because that’s the way they’ve always been done.

  8. I think the cut to AA+ for the US is warranted. The US Government is currently spending $1.60 for every $1.00 it collects in taxes. That is unsustainable. Before this changes, we have to change Presidents. Germany and the UK should probably be AA and France should probably be AA-.

    I think you’re much too generous to Germany, the UK, and France, in particular France. Germany is in deep trouble. Its growth is largely illusory, because most of it comes from shipping products to countries that ultimately aren’t going to pay for those products. Germany also has huge commitments off the balance sheet, not least to Euro bailouts. The UK is also in deep, deep trouble, with even wildly optimistic projected growth insufficient to keep up with population growth. I’d be very surprised if UK growth in real terms exceeds 0.5% annually for the next ten years or more. UK banks are also terribly exposed to worthless Euro bonds. As to France, its entire economy is rotten. At this point, no one really knows what its exposure is to southern tier EU debt, other than that it’s gigantic. But, with the exception of the UK, the real problem that all of these former nations have is that none of them is sovereign. They’re not actually nations, because they don’t control their own money. That advantage, which the US and UK have, is inestimable.

    Essentially, the US is in horrible, deep trouble, but trouble that it can survive. The Euro nations (including Germany, although it is not yet obvious to everyone) are terminal. The only solution is the breakup of the Euro and ultimately the EU itself. But what has to happen is that Germany leaves the Euro and returns to having its own currency. That leaves the poor, profligate nations holding the Euro, which will suddenly be devalued to a small fraction of its current worth. Ultimately, I think most of those nations will decide to go it alone and reintroduce their own national currencies, which they can then devalue the crap out of.

  9. If the USPS does cut 120,000 employees, they will probably picket your local PO. We’ll probably get pelted with junk mail and called potential scabs. The PO has to deliver first class letters to anywhere in the US and any APO/FPO in the World for the same price. Outrageous salaries and benefits plus “exclusive” first class mail will kill the PO.

    I still deal with many schools who will only accept an invoice via mail. No fax or email. Geeze. I can usually get around that by finding a nice person in their admin structure who will print out the email and hand it to accounts receivable. Still, many will only accept “original” travel receipts. First class is the cheapest. I don’t want to pay $5 to send an ounce of receipts worth a couple of hundred dollars or less.

  10. Well, I probably misestimated that which illegal aliens earn. Most of them are probably paid the state mandated minimum wage and I think that this is what all car wash rag wipers earn as the state does check up on them and does inspect the time card records at the car washes.
    OTOH, I would expect the door to door flyer carriers to earn minimum wage also, but paid by the day. Which means cash and no paycheck with IRS and FICA deductions.

    Regardless none of them get medical or pension benefits at whatever they do.

  11. ” “1. Eliminate rural free delivery, which is extremely costly. Establish population-density metrics to determine whether any particular home or business is eligible for free delivery or must pick up its mail at the nearest post office.” ”

    “For me, this would be 3 mile, 15 minute round trip in my Jeep to pick up a 1st class letter today. If the above suggestion were implemented, driving would not be feasible; therefore, it would be a one hour round trip walk and how many hours in a line at my local post office, if not closed?”

    Come on Slim! You live in one of the most densely populated cities in the world. There’s no chance that they’d cut off your snail mail delivery.

  12. The fact that you can mail something from the middle of nowhere on one end of the country to the middle of nowhere on the opposite end of the country for a mere 44¢ is rather amazing.

    Here’s what I think the USPS needs to do:

    They probably needs to double or triple their postage prices for letters under 1 pound.

    They could also simplify their pricing/classes. It’s ridiculously complex.

    They could hire some postal workers to work the counter at the post office that are not assholes and/or slow as molasses. There’s also some “good ole boy” and “cronyism” that needs eliminated in many regions.

    They need to de-unionize. RBT is right. They earned far too much in pay and benefits for a job that could be done by almost any unskilled laborer. They’re only overpaid like that because of the APWU. The APWU is going to kill the USPS with labor costs almost like the UAW almost did with the American auto industry.

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