[OPE] Eonomic rationality in the eyes of Goldman Sachs

From: Jurriaan Bendien (adsl675281@tiscali.nl)
Date: Fri Feb 15 2008 - 06:26:51 EST

Insight: The next crisis will be over food By Gillian Tett Published: FT, February 14 2008 

(...) the World Food Programme, for example, now thinks a third of the world's population lives in countries with food price controls or export bans. However, Goldman Sachs thinks this is just part of a much bigger problem of capital and resource misallocation. 

After all, [Jeff Currie, head of commodities research at Goldman Sachs] argues, if the world today was a rational economic place, then regions such as the Gulf which are food-constrained ought to be investing heavily in agriculture. And since the US is the world's biggest agricultural supplier, this implies that the Saudi Arabians, say, should be snapping up farms in Wisconsin - as America secures oil in the most efficient manner by sending teams of Texans to Riyadh. 

But in practice numerous investment controls prevent Saudi Arabians from buying Wisconsin farms and Americans owning Saudi oil wells. And these controls are not being dismantled now. On the contrary, mutual mistrust is now rising. Hence the fact that Gulf leaders are currently considering desalinating sea water to plant wheat in the desert - while the US and Europe are trying to turn corn into fuel. 

Such exercises might make sense in domestic political terms; but they are apt to be fiendishly expensive. Thus the upshot of this misallocation, Mr Currie would argue, is even more inflation - even if the world does experience some form of growth slowdown. 

Now, for any investor who is long on commodities right now (and I would guess that club includes Goldman Sachs), such trends might seem to smack of good news. For anybody who is dirt poor in the developing world, however, the picture is disastrous. http://www.ft.com/cms/s/5a9b3c72-db2e-11dc-9fdd-0000779fd2ac.html

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