Faber: Bernanke Will Destroy the Dollar

Federal Reserve Chairman Ben S. Bernanke will "destroy the U.S. dollar" by cutting interest rates, investor Marc Faber said.

Bernanke's reduction in the target rate for overnight loans between banks to 3 percent has spurred a rout in U.S. stocks and gains in oil and gold prices, said Faber, the Gloom, Boom & Doom report publisher who told investors to buy gold at the start of its six-year rally.

The U.S. is now in a ``de-leveraging'' phase where banks make fewer loans, stunting economic growth, Faber said. He estimated that a U.S. recession began two or three months ago.

``In the U.S., they pursue essentially economic policies that target consumption, which in my opinion is misguided,'' Faber said in an interview with Bloomberg Television from Chicago. ``They should pursue economic policies that stimulate capital investment and capital formation.''

The Standard & Poor's 500 Index is down 9.7 percent since Sept. 18, when the Fed began cutting the fed funds target to 3 percent from 5.25 percent. The dollar has lost 9.2 percent of its value versus the euro, crude oil futures gained more than 29 percent and gold added 34 percent during that time.

Further interest-rate cuts may spur inflation and reduce the value of 10- and 30-year Treasuries, Faber said, calling the bonds ``a disaster waiting to happen.'' Ten-year notes fell to a four-year low of 3.44 on Jan. 22.

Sugar, Emerging Markets

Faber said sugar is inexpensive relative to other commodities and said stocks in emerging markets are more vulnerable than U.S. equities because speculation has created larger asset bubbles. He predicted shares in India and China could lose 30 to 40 percent of their value as markets decline worldwide.

Faber's Hong Kong-based Marc Faber Ltd. manages $300 million. Faber told investors to bail out of U.S. stocks a week before 1987's so-called Black Monday crash, according to his Web site.

Faber correctly predicted in May 2005 that stocks would make little headway that year. The S&P 500 gained 3 percent. He also told investors to buy gold in 2001, before it more than doubled.

On March 29, 2007, Faber said the emergence of home loan concerns meant the U.S. stock market was unlikely to benefit from the conditions that supported its rally since June 2006. The S&P 500 climbed 10 percent between then and July 19, when it reached a record, and again reached highs on Oct. 5 and Oct. 9.

In February 2004, he said stocks in Brazil and Argentina were expensive because investors were overestimating China's demand for commodities. Brazil's Bovespa index has since almost tripled while Argentina's Merval Index has gained about 93 percent.