Today's comment is by Bob Bauman JD, Legal Counsel and Senior Writer for The Sovereign Society.

For the last week, eyes across the nation have been focused on Hurricane Gustav and its frightening potential. But even as we breathe a sigh of relief at the now "tropical depression" Gustav, new dangers emerge on the horizon in the form of Hanna, Ike and Josephine.

But the activity in the tropics only serves to distract Americans from the real threat; the ‘perfect storm' brewing in the U.S. financial system.

It is a financial storm the likes of which we've never seen. And weathering this storm will take preparations that you may not have considered in the past.

Specifically, I'm talking about offshore banking.

Gimme Financial Shelter

In the last decade offshore banking has undergone enormous changes and improvements.

Under pressure from the Organization for Economic and Community Development (OECD) and its Financial Action Task Force (FATF), most reputable offshore jurisdictions have become more transparent. Each of these countries has imposed "know your customer" rules that are enforced better than those in the United States and the U.K. -- where most of the money laundering takes place.

This is important because now more than ever you may want to seek alternatives to having all your liquid assets tied up in U.S. banks. The omens for a major U.S. financial storm are stark.

Drowning in Trillions of Debt

As of April 2008, the total U.S. federal debt was approximately US$9.5 trillion.

That figures out to be US$31,600 for every man, woman and child in America. When you add in unfunded obligations of programs such as Medicaid, Social Security, Medicare, etc. this debt figure rises to a total of US$59.1 trillion.

In 2007, the U.S. public debt was 36.9% of our Gross Domestic Product while the total debt figured out to be 65.5% of GDP. Those numbers place the once mighty USA in line with third world countries that are also in hock up to their eyeballs.

If you want to get the whole picture of where America stands economically, check out the documentary film "I.O.U.S.A." It's an eye-opening experience.

What you'll find is a country drowning in debt at both personal and government levels... and ample reason to be concerned about the solidity of our once-trusted financial institutions.

Is Your Bank Safe?

If you have been paying even scant attention to the news, you know about the housing mortgage crisis, the bank failures, the investment houses, banks and mortgage companies writing off billions of dollars.

Last Friday officials closed the 10th commercial bank this year. It was a small bank in Georgia with US$1.1 billion in assets. The problem? You guessed it, rising loan defaults. The FDIC now has 117 banks on its danger list that could fail. The probability of a large number of these banks actually failing is quite large.

As most depositors know, the basic insurance limit on U.S. bank deposits is US$100,000 in a single bank. If you know the rules well, however, it is possible for a single person to extend that coverage to more than US$500,000 at one bank. This can be done by utilizing multiple account ownership categories (private, commercial, business, investment) since the US$100,000 insurance limit applies by account category and per account holder.

My colleague, David Newman, Market Analyst for The Sovereign Society, explored the role of the FDIC in an excellent article, "Who Really "Insures" the FDIC?"

By all means, as David suggests, make sure your savings are in a domestic American bank that has maximum FDIC insurance coverage. And make sure you understand FDIC rules so you get maximum coverage.

But if you want to diversify your liquid assets internationally...if you want maximum financial privacy (the kind you can no longer find in the United States)...and if you want to enjoy the equivalent of FDIC insurance in other major economies...then you should consider the option of offshore banking today.

Not Just for the Rich Anymore

Not too long ago, only the wealthiest investors could benefit from having an offshore bank account. Only the richest of the rich could afford the fees and legal advice associated with going offshore.

Now, after dramatic changes in international banking and communications, even a modest offshore account can be your quick, inexpensive entry into the world of foreign investment opportunities.

Although the IRS tries to discourage offshore banking, having an offshore account is fully legal and can help you build financial structures to increase your wealth legally and protect your assets.

An offshore bank account is also a highly effective and economic way to achieve your legitimate financial goals - and many offshore banks are a lot more financially secure than some American banks these days.

Aside from safety, a foreign bank account can be employed as an integral tool in an aggressive offshore wealth building strategy.

Offshore banking is also a big business worldwide. Recent estimates calculate that as much as US$5 trillion is stashed in nearly 40 offshore banking havens that impose no taxes. Many of these same havens also guarantee deposits, have less onerous regulations, guarantee privacy, and cater to nonresidents. One third of the entire world's private wealth is stashed in Switzerland alone!

The Sovereign Society has contacts with a network of leading banks from Switzerland to Singapore, from Panama to Hong Kong. We'll be pleased to help you shield your assets and increase your privacy and profits - by going offshore. And now – more than ever – is an ideal time to move from idea to action, as that “perfect storm” moves ever closer to the U.S. financial system, and to you.

BOB BAUMAN, Legal Counsel

P.S. Need some advice to set up your own bank account abroad? This November, I will join offshore professor Erika Nolan and "guest lecturers" Vienna's Andrew Griebl and Zurich's Robert Vrijhof to give you all the ins and outs to moving your wealth offshore far beyond the U.S.'s borders. We'll convene at our Third Annual Offshore Advantage Academy in Cancun, Mexico. Seats are already filling up, so please check your schedule to see if you can join us. Get all the details here.

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Freddie and Fannie May Be Debt-Ridden,
But Their Bonds Are Worth Holding

Central banks are notorious for their ill-timed investments. The latest such trade was conducted by several Chinese banks in August as they reduced their combined positions in Fannie Mae (NYSE:FNM) and Freddie Mac (NYSE:FRE) debt.

Erring on the side of caution, you can't blame China's banks for selling Fannie and Freddie debt. After all, many of these banks have already lost billions betting on global stocks recently, including U.S. banks.

But the timing of the sale is just dead-wrong. Right now, both lenders have the implicit U.S. government guarantee that Freddie and Fannie won't fail. Plus, Freddie and Fannie have some of the richest spreads versus Treasury bonds in history. Fannie and Freddie bonds have gained 3% in 2008.

If anything, now is the time to buy, not sell, Fannie and Freddie debt. PIMCO is probably the savviest bond investor in the world with more than US$800 billion in assets. Recently, PIMCO has been aggressively accumulating mortgage-backed securities.

Last week, PIMCO announced they may be creating a private fund to buy the highest quality mortgage-backed securities.

China's recent paring of U.S. GSE (Government Sponsored Enterprises) holdings is not significant considering all positions are valued at less than US$13 billion.

Both mortgage lenders have issued hundreds of billions of dollars in fixed-income securities over the years. China's slicing of US$23.3 billion on December 31 to US$12.7 billion as of August 25 won't affect GSE pricing in a big way. The figure is not big enough.

Global central banks - including several Asian and Middle Eastern banks - have a bad track record making investments lately.

Sovereign Wealth Funds, or SWFs, have been aggressively buying distressed U.S. and European financial services companies since the sub-prime market exploded in August 2007. These guys have already lost billions on paper since last fall.

Central banks are also notorious for making the worst investment decisions at the wrong time. Over the last decade a host of central banks have dumped gold just as prices bottomed in the late 1990s.

Are Chinese banks right to reduce GSE holdings this summer? My guess is probably not. I'll bet on PIMCO.

ERIC ROSEMAN, Investment Director

Gambling vs. Trading in the Forex Markets

In my opinion, there is one thing that separates the novices from the professionals in the Forex market: Novices gamble and professionals trade.

This is a key distinction because it's the reason countless new currency investors have trouble trading in the Forex market.

So what separates gambling from trading? In a word: Risk.

Successful traders take calculated risks. They gauge the risks to each trade and allocate their funds accordingly. In other words, they think about what they could lose on a trade - rather than just the possible gains.

To be successful, you need to think about how much you're betting on each trade. Take this into account when you're placing each order. Make sure no one trade can wipe out your account.

This is how the professionals trade. And even though you aren't trading billions, you can still profit from the same strategy.

SEAN HYMAN, Currency Analyst

EDITOR'S NOTE: We just finished the definitive work on currency investing: Cracking the Currency Vault: An Insider's Guide to Succeeding in the Forex Markets...from CDs and ETFs to Spot, Options, Futures and More. You can pick up your FREE copy when you join us for FX University this fall. Get the details here.

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