Why Wal-Mart will save America
Posted
Feb 25 2008, 05:44 PM
by
Anthony Mirhaydari
Rating:
What is probably the most-hated corporation in the United States is poised to become its private-sector savior.
Wal-Mart rang up monster sales last quarter as cash-strapped American consumers flocked to its stores for its famous "everyday low prices." Profit rose 4% to $4.1 billion as consumers redeemed holiday gift cards for basic necessitates like groceries and toilet paper. The company's stunning earnings report shows that during a holiday season in which its rivals faltered, Wal-Mart won by going on a price-slashing rampage, marking down more than 15,000 items by up to 30%.
This is how Wal-Mart will help the average American: By stretching the purchasing power of their dollars. While the Federal Reserve frantically stimulates the economy with liquidity injections and interest rate cuts, the dollar remain weak. This stokes inflation. And of course, continued economic growth in developing countries only adds to the pressure on food and fuel prices.
Wal-Mart, thanks to its vast scale and hard-nosed negotiating tactics, is shielding hapless consumers from price hikes by the likes of Kraft, General Mills, and Procter & Gamble. Also, through the addition of health clinics in its stores, it’s fighting rising health care costs too. Recent research estimates Wal-Mart saves the average family around $2,500 each year. That’s a pretty big deal when you consider the median household income is around $48,000. Simply put, Wal-Mart is reducing the nasty side effects of the Fed’s economic voodoo.
By acting as a disinflationary force, Wal-Mart is actually giving the Fed more room to maneuver by keeping published inflation measures lower than they would be otherwise.
Keep in mind that it’s absolutely critical for inflation expectations to remain low. If they become unanchored, and people start demanding higher wages, all hell would break loose. The Fed would be forced to return to its inflation-fighting congressional mandate, interest rates would go up, and the housing sector would be reduced to a smoldering crater. It’s not coincidental this has been a popular topic lately.
So, on one hand Wal-Mart is helping people live paycheck to paycheck as they suffer through an epic consumer-led recession. On the other, it’s helping Ben Bernanke and his cohorts juice the economy back into high gear. That combination should be enough to put a big happy face on anyone holding a grudge against Sam Walton’s baby.
