[A-List] US imperialism: everything on credit

["Michael Keaney" <michael.keaney@xxxxxx>]

The Wal-Martisation of almost everything
John Plender on Monday
Financial Times: November 15 2004

Pity the poor old suppliers

If you want to understand what the globalisation of Wal-Mart will mean for
Europe and Asia, take a look at the latest accounts of Wal-Mart Stores (UK),
which owns the Asda retail chain.

In 2003, when sales rose from $12.2bn to £13.3bn and profit was up by £49m
to £258m, the figures that jump out relate to working capital.

While trading stocks were down marginally on the year at £594m, trade
creditors rose a whopping £314m to £1.6bn. As a percentage of trading
stocks, that is a jump from 209 per cent to 262 per cent. In other words,
the poor old suppliers, all 14,000 of them, are doubling up as bankers to
Wal-Mart in an ever bigger way. Wal-Mart has, since March 2002, been
complying with the UK supplier code of practice introduced after a
Competition Commission inquiry. Even so, that points to a ferocious squeeze.

This helps explain the stock market underperformance of consumer groups such
as Unilever and Nestlé.

In effect, Wal-Mart and other retailers with heavy duty purchasing power are
obliging their suppliers to go further into an esoteric branch of the vendor
financing business. The folk from Bentonville, Arkansas, drive a very big
steamroller.

<snip>

Learning from Argentina

Last week, I excoriated the European Commission for pontificating on
accounting standards when its own accounts and controls were such a mess. In
fairness, I should add that the failure is not unique. The Comptroller
General of the world's singular superpower has been unable to pass an audit
opinion on the US government's financial statements for years because of a
similar mess although, to his credit, David Walker expresses the point more
forcefully than the European Court of Auditors.

This is one that the credit rating agencies have surely misjudged. The US
current account deficit is approaching 6 per cent of gross domestic product
and the country's external liabilities look like hitting 50 per cent of GDP
before the decade is out. Those liabilities are financing a huge fiscal
deficit. What with demographic pressures, rising health care costs and
escalating geopolitical adventures, it is hard to believe that a triumphant
George W. Bush will be marked by fiscal rectitude.

The rating agencies downgraded Japan, the world's largest creditor country,
to the level of Botswana despite the fact that its vast public sector debt
was owed mainly to the Japanese people. Yet the US retains a Triple A rating
while doing its best to turn itself into Argentina -- albeit with the
difference that it borrows in its own currency. My suggested motto for the
rating business: Forever Behind the Curve. Or should I save that for Alan
Greenspan's Federal Reserve?