Hasn't the greenback suffered enough?
Not by a long shot, say Goldman Sachs economists in a note to clients this week. They estimate the dollar's value would have to drop by another 10% to bring the U.S. trade deficit down to its natural, internally balanced level.
A call for a further decline in the dollar hardly ranks as a shocker, what with sages from around the globe weighing in daily on the supposed boneheadedness of Fed chief Ben Bernanke's decision to buy more Treasury bonds.
But as far as the dollar has fallen, Goldman Sachs' Dominic Wilson says it's important not to underestimate the size of the remaining decline.
"To meaningfully reduce global imbalances, [the dollar] needs to fall a lot more from here," he writes.
He adds that ideally, further drops in the dollar will come not at the expense the usual suspects, the euro and the yen -- both of which have shot straight up against the dollar since the U.S. recovery ran out of steam in June.
The dollar traded recently at $1.37 against the euro, off its recent low of $1.42, and 82 yen, after a recent 15-year low near 80.
Instead, Wilson says, the lion's share of any coming decline should come against the rising currencies of developing Asia. That's noteworthy because rebalancing global trade is under discussion as global leaders meet in Seoul for the G-20 meetings.
Recent weeks have brought cries of trade and currency wars as the fall of the dollar has pushed up free-trading rivals such as the yen and euro, while exposing dollar peggers such as China to rising inflationary pressures.
Apropos of Treasury Secretary Tim Geithner's proposal to limit national trade gaps, Wilson estimates how much various currencies would need to appreciate or decline to put trade accounts into broad balance.
By his reckoning, the four most overvalued currencies in the world are called the dollar --with only the commodity-exporting powerhouses of Australia, Canada and New Zealand topping the United States.
By contrast, the most undervalued currencies are those in emerging Asia, led by China, Singapore, Taiwan and Malaysia.
To put the world on a balanced trade footing, Wilson estimates, China's yuan needs to appreciate 19% in real, or inflation-adjusted, terms. He also calls for big increases elsewhere in what Goldman dubs non-Japan Asia, or NJA -- 28% for Singapore, 23% for Taiwan, and 13% for Malaysia.
"The basic picture that emerges is that current FX trends—USD weakening and NJA strengthening—have a long way to go from here, in line with our call for more broad USD weakness ahead," he writes.
Of course, for that to happen the way Goldman forecasts, global leaders will have to come to a landmark agreement to change the very economic policies that have brought them increasing prosperity over the past decade.
"The likelihood of our seeing a massive paradigm shift over 36 hours is not all that good," said Jessica Hoversen, an analyst with MF Global. "There are so many questions, and for the moment the self-righteous aren't apt to compromise."
But given the cracks in the established order, it's a good sign that the discussions are happening at all, which will free everyone to keep hoping that progress will be made one of these days, if not quite yet.
In the meantime, Ben Bernanke will continue to get yelled at and leaders in China and other emerging nations will face a growing risk of asset bubbles and inflation. It's an unhappy reality, Wilson writes, and "no amount of G-20 word-smithing can get around this fact."
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