NEW YORK - March 3, 2009 - American International Group should be allowed to go bankrupt because keeping it and other sick financials alive on government support risks ruining the U.S. economy, legendary investor Jim Rogers told CNBC Tuesday.

AIG, whose $61.66 billion fourth-quarter loss was the largest ever for a U.S. company, received $30 billion more in government funds Monday. The insurer's financial health hasn't improved despite getting as much as $150 billion from the government last year.

"Suppose AIG goes bankrupt; it is better that AIG goes bankrupt and we have a horrible two or three years than that the whole U.S. goes bankrupt," said Rogers. "AIG has trillions of dollars of obligations; let them fail, let the courts sort it out and start over. Otherwise we'll never start over."

On Monday, CEO Edward Liddy told CNBC that the insurer is far more stable and secure than it was last fall but acknowledged that it was "difficult to say" if AIG will need even more money from the government in the future.

Bailing out the banks is going to increase the debt spiral and finally cause the destruction of the world's biggest economy, Rogers said.

"I think it's astonishing, they're ruining the U.S. economy, they're ruining the U.S. government, they're ruining the U.S. central bank and they're ruining the U.S. dollar," he said.

"You are watching something in front of our eyes, very historically, which is basically the destruction of New York as a financial center and the destruction of Amerika as the world's most powerful country."

Japan's economic "lost decade" was caused by trying to bail out the banks, and the West risks running out of money if it doesn't let the bad banks fail now, Rogers warned.

Systemic risk is going to be the same in 10 months, 5 years or 10 years if the fundamental problem is not solved, he added.

"The idea that you have too much debt, too much borrowing and too much consumption and you're going to solve that problem with more debt, more consumption and more borrowing? These people are nuts," said Rogers

Wall Street and the City of London are going to be "disastrous" for years, like in the 1950s and 1960s, and in 30 years, finance will "dry up and wither away" as we are entering a "long period of hard times," he said.

"Power is shifting now from the money shifters, the guys who trade paper and money, to people who produce real goods. What you should do is become a farmer, or start a farming network," suggested Rogers.