Americans won't have to pay more for stamps in January. A U.S. Postal Service request for higher postage rates was denied by postal regulators. They said that USPS failed to show that the recession was the reason for its troubles, which is required for a postal hike that exceeds the rate of inflation. Instead, the regulators blamed a poor business model, which it declared higher postage rates won't fix. So now what?

There are basically two options. The first is that USPS just continues incurring multi-billion dollar annual losses and relies on the government for an ongoing subsidy. The second is that it actually fixes its business model to be profitable -- or at least to break even. The Postmaster General John E. Potter prefers the latter, but red tape stands in his way. Ed O'Keefe from the Washington Post reports:

"Clearly, the Postal Service is a viable business," but legislative constraints on the mail agency are hampering its ability to operate efficiently and profitably, Potter said. The Postal Service will end fiscal year 2010 with about $2 billion in cash and available credit and will make a $5.5 billion payment to pre-fund retiree health benefits even though Congress declined a request to defer the payment, he said.

Potter is lobbying lawmakers for the flexibility to close unprofitable post offices, set delivery routes and pricing without seeking Congressional approval. Senate Democrats last week unveiled a bill supported by Potter that may come up for consideration during the lame-duck session, aides said. But Republicans oppose most of the proposals and are soon expected to introduce competing legislation.

So essentially the question is whether Americans will accept a U.S. Postal Service with fewer locations, probably slower delivery, and higher prices. If so, then it can probably find a business model that works. If not, however, it's hard to see how USPS can survive without an ongoing subsidy.