The Ultimate Inflation Hedge May Be in the Mail

May 10 (Bloomberg) — The desire to hedge is universal. People want to hedge inflation — especially this week. They want to hedge market losses, oil-price changes, even wars.

But there are those of us who are also obsessed with betting against a highly specific kind of risk: government waste.

Part of that desire is emotional. After all, the Internal Revenue Service, the U.S. Department of Agriculture and other bureaucracies act with little consequence. They are rarely held to account for the national deficits or personal hassle they generate. You don't have to be a Red State radical to feel cynical about this.

Did I mention the U.S. Postal Service? Next Monday brings a 2-cent increase in the price of the first-class stamp, to 41 cents. We've had word this year that the postal service is suggesting that postmasters remove clocks from 37,000 stations. They say it's to make room for "product information posters." Perhaps what they really want to do is distract clock-watching customers from post office waiting times.

To all of which the hedging brain responds: Can I at least cut my exposure here?

Not easily. Of course, Treasury bonds offer a general version of such a hedge against government waste. There are even TIPS, or Treasury Inflation-Protected Securities, introduced by Secretary Robert Rubin in 1997 — when a first-class stamp cost 32 cents.

Prospering From Waste?

To the extent the federal government unexpectedly causes inflation by spending too much, TIPS owners profit. A related concept drives New York-based Singer Congressional Fund, which is based on the premise that markets go up more when Congress is out of session — and therefore unlikely to cause trouble.

Alas, until recently, opportunities to profit from the waste of a specific bureaucracy have been frustratingly few.

Now the postal service itself, of all places, is providing just such a chance in the form of a new product that even your grandmother can use. In these days of shocking Fed pronouncements, it has an alluring name: The Forever Stamp.

The Forever went on sale for the first time last month, marketed as if it were just another convenience item, designed to reduce the need to buy 1- or 2-cent stamps to affix next to the old one when the increase comes.

And on the surface, Forever does seem like any old stamp. They can be bought online in 20-stamp sheetlets, or by telephone, or even from ATM machines. They will sell for the same price as a regular first-class stamp. When that price moves up again, the price of Forevers will move up, too.

No Limits

Forevers look like other stamps, featuring the Liberty Bell in the sort of browns and sepias that remind us of the 1960s. Spokesman Mark Saunders says there is no official limit on supply.

The only difference here is that the postal service has declared that Forever stamps purchased now will be good even after the next rate increase, and the next, and the next — forever.

And in this forever claim made to grandmas lies something worthy of the attention of the keenest minds of Wharton: a genuine government office betting on its own future. The stamp in effect guarantees that the buyer won't have to pay whatever share of the stamp-price increase is greater than the increase in overall inflation, i.e., the waste. This is a brave act, at least for a bureaucracy. To honor its own commitment, the postal service can't waste too much.

Can't Go On Forever

A quick survey of rate increases suggests the postal service has had a hard time managing that in the past. In January 1960, a first-class stamp went for 4 cents. Using one of Uncle Sam's own measures, you find that keeping stamp-price increases level with inflation would have meant selling the first-class stamp at 28 cents today.

In other words, you or I today could buy thousands of dollars worth of Forever stamps on the reasonable suspicion that it is unlikely the post office can offer these stamps forever. And the day they close the Forever window, our Forever inventory will be postal gold.

The prospect, even if it's only that, is so pleasing that it may compensate for the fact that personal-finance math suggests Forevers can't compete with mutual funds or bonds. It may also make up for the reasonable prospect that the postal service makes money off its Forever trade. After all, a disproportionate share of stamp customers these days are senior citizens, who are highly likely to lose their Forevers, or at the very least to forget which drawer they stuck them in.

Not Amused

In fact, the post office has probably already made some money. The Forever stamps went on sale for 41 cents on April 12, a month before the price-increase date for regular stamps. Nearly $83 million in Forevers so far have sold, or 202 million stamps. At 2 cents extra a stamp — well, you do the math.

The idea of a Forevers market is something the post office frowns upon. "We don't encourage people to look at this as an investment," Saunders says. The Internet may spoil the whole bet by doing its creative destruction faster than anyone imagines, obviating the post office altogether before the Forevers market becomes interesting.

But that doesn't mean that those of us frustrated by crabby officials or pointless bureaucracy can't still snatch up the Liberty Bells. Time will tell whether the Forevers stay forever young.

(Amity Shlaes, a visiting senior fellow at the Council on Foreign Relations, is a Bloomberg News columnist. The opinions expressed are her own.)

© Copyright 2007 Bloomberg

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