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Every fiat currency system throughout history has eventually collapsed. Since the early 19th century we have seen over 30 currencies meet their death through hyperinflation. From the Roman Empire, to Greece, to Germany; and now, today the Zimbabwe government has achieved 2.5 million percent annual inflation. This hyperinflationary expansion of money supply usually involves governments facing war, economic depression, and political upheaval. Today the United States is facing all three. In the face of the credit crisis they have already bailed out several of the world's largest financial institutions. Given current economic conditions, experts predict thousands of banks will soon be on the line as well. The Federal Reserve is just getting warmed up in its efforts to crank up the printing press in its efforts to bailout the financial system. It is now, more than ever, looking like the US dollar will be the next to collapse. Investors should take action now if they want to profit and protect from the crisis at hand.

The Federal Reserve is stuck in a situation where if they allow the money supply to contract it will collapse the US economy. Given recent actions of the Federal Reserve, it seems as if they are willing to do anything ...even suffer severe inflation to prevent this. They will likely choose an expansionary policy, bailout programs, and clever financing to bailout the system. We are only in the initial stages of the credit crisis, and so far they have used taxpayer wealth to bailout Bear Stearns, Fannie & Freddie and AIG. Now they are making plans to use taxpayer's wealth for another $700 billion reserve. And from previous experience, we all know that when the Fed says it will be 700 billion, it most likely will be substantially more. The International Swaps and Derivatives Association have announced that the credit default swaps contracts now total $62 trillion, up from $34.5 trillion a year ago. Even 5 percent of this market would amount to $3.1 trillion.

The mainstream media and the US government continue to say that the worst is over. There is nothing to worry about. Should you believe them; or should you be asking yourself "who will be next?" There are many more financial institutions facing serious problems, including Citigroup, UBS and Washington Mutual. Some estimates for the number of financial institutions to go bankrupt over the next couple of years is anywhere from 500 to 2000. Respected investor W. Scott, owner of an equity holding company, estimates that 1000 banks will be going bankrupt within the next year. According to owner of Weiss Ratings: a well respected bank rating agency, "1,479 U.S. banks and 158 U.S. thrifts are at risk of failure, with total assets of $3.6 trillion, or 36 times the assets of banks on the FDIC's list of troubled institutions."

"Fortis chairman Maurice Lippens expects bankruptcies among 6000 American banks which have a small coverage currently. But also with Citigroup, General Motors, a complete meltdown in the US is beginning."  (Source: Amerikaanse 'meltdown' reden geldinjectie Fortis - De Financiele Telegraaf)

Announcements of bank failures almost always come on Fridays after the markets close so that they can lessen the impact they will have on the markets. The most recent bank failure announcement was Ameribank last Friday. We should expect the FDIC failed bank list to grow rapidly over the next couple of years.

As more banks go under, the FDIC capitalization of $42 billion will be quickly depleted. At that point the FDIC will turn to the US Treasury to satisfy FDIC insured deposits. The only problem is, they will have to print the money. Depositors will get their $100K deposits in inflated dollars. Laurence J. Kotlikoff explains this well in his article entitled "Is the US Going Broke?" (Forbes.com, 09/29/2008)

Foreign bond-holders might decide to dump the dollar. China and Russia have already used the "threat to dump US Treasuries" as a geopolitical weapon. China alone holds over $1 trillion in US Treasuries. When they decide to dump these on the market it will cause US bond yields to spike and send the housing market into an even worse condition, resulting in a chain reaction of events into the rest of the economy. Remember what Ludwig Van Mises said; "Bonds are certificates of guaranteed confiscation."

Individuals and investors that are holding or earning dollars need to protect themselves. Any of these events could leave the dollars and bonds backed by the "good and faithful credit" of the US government at risk. Being long silver and short the US bonds should be among the top performers in the coming 18 months.

Futures and options trading involve significant risk of loss and may not be suitable for everyone. Therefore, carefully consider whether such trading is suitable for you in light of your financial condition. The views and opinions expressed in this letter are those of the author and do not reflect the views of ADM Investor Services, Inc. or its staff. The information provided is designed to assist in your analysis and evaluation of the futures and options markets. However, any decisions you may make to buy, sell or hold a futures or options position on such research are entirely your own and not in any way deemed to be endorsed by or attributed to ADMIS. Copyright © ADM Investor Services, Inc.

Get your Futures Chart Book from ADMIS and CME Group!

Sign up for your Futures Chart Book from ADM Investor Services and CME Group. This chart book includes useful historical data, Open Interest and Volatility on 16 popular CME Group contracts, including Corn, Wheat, Soybeans, S&P 500 Index and much more!

Sign up and receive your complimentary copy today!