The Profit of Doom.(interview with)(Brief Article)(Interview)

Barely a year ago, Asia-based financial analyst Marc Faber--known as "Dr. Doom"--predicted that the high-tech bubble would burst, eviscerating stock earnings, deflating the Nasdaq and pushing the global economy toward a recession. Vindication, however, is not enough for the 55-year-old contrarian, publisher of the monthly Gloom, Doom and Boom Report. He still has a few more sacred cows to grill. From his home in Chiang Mai, Thailand, Faber spoke with NEWSWEEK's Hong Kong bureau chief, Brook Larmer.

LARMER: Do you feel vindicated?

FABER: Well, the bubble did burst, but the recession hasn't come yet, at least not fully. Consumer spending has held up, but only because people are borrowing more to sustain consumption. And that's a dangerous problem in the U.S. economy: overborrowing. If you pursue a monetary policy that encourages [spending], you'll have a much worse problem later.

You mean [U.S. Federal Reserve Chairman] Alan Greenspan's interest-rate cuts?

Yes. Rate cuts don't help much. In Japan, for example, it would've been better to have a sharp recession in 1992. But instead companies were able to continue to borrow recklessly. So now the problems in Japan are much larger than if the market had been allowed to take its course and get rid of weak companies. The market would have carried out the reform. The U.S. is about to repeat the error. Rate cuts cause further borrowing, further expansion. And that means the recession will be longer and deeper--and the recovery will be shallow.

How do you see the prospects for Asia?

I look at Asia over the next 10 years and see a huge change in economic geography. And it's all centered on China. Until 1993 the rest of Asia [annually] received more than two times as much direct investment as China. Now it's reversed: China receives twice as much foreign direct investment as the rest of Asia combined. Asian companies and multinationals are shifting their production into China. This is bad news for South Korea, Japan and Taiwan. But it's great for individual companies.