That the US postal service is on the verge of bankruptcy is well-known by now and was discussed by Zero Hedge long before it became mainstream news. Furthermore, as we previously noted, the key sticking point in cost reduction negotiations is the labor force compensation (80% of all costs), which is paid an average of $41.15 an hour, and which is over 60% unionized. As of today, we finally welcome the USPS to reality which has announced that, in an attempt to avoid bankruptcy, it is now seeking to reduce its total overhead by 20%, or a whopping 120,000 workers (a number which would amount to roughly an increase of 0.1% in the national unemployment rate). Ah yes, but this is prohibited by existing union contracts. Furthermore, WaPo writes that "SPS also wants to withdraw its employees from the health and retirement plans that cover federal staffers and create its own benefit programs for postal employees." Good luck trying to convince a labor union that cutting an ungodly amount of jobs is for the greater good. Alas, what happened in Greece (and what is about to happen in Italy) will be nothing compared to what will happen when the entire post office goes, well, postal.

This major restructuring of the Postal Service’s relationship with its workforce would need congressional approval and would face fierce opposition from postal unions. But if approved, eliminating contract provisions that prevent layoffs and quitting the federal employee health and retirement programs could have ramifications for workers across the government and throughout the national’s labor movement. In a notice to employees informing them of its proposals, with the headline “Financial crisis calls for significant actions,” the Postal Service said “we will be insolvent next month due to significant declines in mail volume and retiree health benefit prefunding costs imposed by Congress.” The Postal Service plan is described in two draft documents obtained by The Washington Post. A “Workforce Optimization” paper acknowledges “that asking Congress to eliminate the layoff protections in our collective bargaining agreements is an extraordinary request by the Postal Service, and we do not make this request lightly. However, exceptional circumstances require exceptional remedies. “The Postal Service is facing dire economic challenges that threaten its very existence. . . . If the Postal Service was a private sector business, it would have filed for bankruptcy and utilized the reorganization process to restructure its labor agreements to reflect the new financial reality.”

And here are the number that will shortly be repeated ad nauseam on every talk show over the next week:

The USPS says it needs to reduce its workforce by 120,000 career positions by 2015, in addition to the 100,000 it expects through regular attrition. Some of the 120,000 could come through buyouts and other programs, but a significant number likely would be the result of layoffs, if Congress allows the agency to circumvent union contracts.

But what is a labor loving president to do (recall how in the Detroit-3 restructurings, labor unions just incidentally took precedence over secured debt holders):

“Unfortunately, the collective bargaining agreements between the Postal Service and our unionized employees contain layoff restrictions that make it impossible to reduce the size of our workforce by the amount required by 2015,” according to the postal document. “Therefore, a legislative change is needed to eliminate the layoff protections in our collective bargaining agreements.”

Those most likely to suffer yet another political whiplash as a result of this huge dilemma (massive layoffs or no more snail mail) is the democratic party:

How Congress will respond to the postal proposals remains to be seen. Many Republicans, including those who have sponsored legislation that labor considers anti-union, may support the plan. Some Democrats probably would back union opposition. But the Postal Service’s critical financial situation could make Democrats have second thoughts.

Sure enough, the unions wasted no time to craft a response:

American Postal Workers Union President Cliff Guffey said, “The APWU will vehemently oppose any attempt to destroy the collective bargaining rights of postal employees or tamper with our recently-negotiated contract — whether by postal management or members of Congress.” National Rural Letter Carriers’ Association President Don Cantriel: “We are absolutely opposed” to the layoff proposal. “We are opposed to pulling out of the Federal Employees Health Benefits Program. Our advisers are not advising us at all to even consider it.” National Association of Letter Carriers President Fredric V. Rolando: “The issues of lay-off protection and health benefits are specifically covered by our contract. . . . The Congress of the United States does not engage in contract negotiations with unions and we do not believe they are about to do so.”

Unfortunately, about 30 years after its inception, the USPS is about to remind America what the source of the "going postal" phrase really is.