Jim Rogers Backs the Buck

The dollar has been falling since 2002 but for a brief rally in 2005. The trade-weighted dollar is down 35% from its 2002 peak. Recently the greenback's decline has become more pronounced as the U.S. economy slowed amid the housing market decline, and the Federal Reserve slashed interest rates despite rising prices of commodities, energy and food.

Today, the dollar sits at a 31 year low versus the Canadian dollar, of all things, and a 10-year low versus the Australian dollar. Both those currencies are strong on the back of rising commodity prices and global infrastructure growth. Gold, often considered a hedge against inflation, is at a fresh 28 year high of $745 an ounce.

Many claim the dollar's weakness is helping offset a dropoff in U.S. economic demand that's come from a recession in the housing market. Goods priced in dollars are cheaper in Europe or Australia, and manufacturing in the U.S. becomes more attractive for companies that export goods. That helps preserve jobs in the U.S.

But a debased currency is a hefty price to pay for growth, and not an easily reversible one, says Rogers. It breeds inflation and weak purchasing power, which ultimately undermines any short-term boost in growth. He reiterated his belief that the U.S. dollar is bound for a decline similar to the British pound's 50% decline in the early 1980s.