CHICAGO (Reuters) — A misunderstanding by financial markets of the so-called “strong dollar” mantra preached by US officials is helping keep the US currency overpriced and contributing to bloated external deficits, Harvard University economist Martin Feldstein said on Saturday.Speaking on a panel on the US current account deficit at the Allied Social Sciences Conventions, Feldstein outlined several factors that are holding the dollar at an overly high, and unsustainable, level.

Repeated statements by US officials in support of a strong dollar “are a nice slogan, but that’s all it is,” said Feldstein, who is also head of the private National Bureau of Economic Research.

Feldstein said a correct interpretation is that “we would like to have a strong US dollar at home (helped by low inflation rates) and a competitive dollar in the world”.

Financial markets are “misled” if they think there would be government intervention or a shift in the Federal Reserve’s monetary policy to protect the dollar’s value, he said.

“The Treasury should not advocate a decline in the dollar, but it should not mislead the markets to think there is some hidden support there for the currency,” he said.

Feldstein said the sense that foreign investment will keep flowing to the US because it is still the healthiest economy is another “error of understanding”.

Most of the money now coming into the country is for debt purchases by foreign governments, not from equity investors attracted by fundamental strength in the US economy, as was more the case in the 1990s, he said.

Speaking on the same panel, Michael Mussa, senior fellow at the Peterson Institute of International Economics, a leading think-tank, said the dollar will need to depreciate substantially, in real effective terms, probably by at least another 20 percent over the next decade to help cut the US current account deficit in half.