After the Federal Reserve incentivized borrowing with more than a decade of artificially low interest rates and easy money, the debt chickens are coming home to roost. Last week, Fitch Ratings downgraded the US’s long-term credit rating from AAA to AA+, and on Monday, Moody’s cut the credit rating of 10 small and midsize banks.
Moody’s also placed six large banks on review for potential downgrades and revised 11 more banks from a stable outlook to a negative outlook. This indicates that the financial crisis continues to bubble under the surface.
The Moody’s report said funding risks and weaker profitability in a higher interest rate environment are squeezing the entire banking sector’s credit strength.
Many banks’ second-quarter results showed growing profitability pressures that will reduce their ability to generate internal capital.”
Moody’s said a “mild recession” in early 2024 could put further stress on banks and problems in the commercial real estate (CRE) sector could spill over into the financial sector.
Elevated CRE exposures are a key risk given sustained high interest rates, structural declines in office demand due to remote work, and a reduction in the availability of CRE credit.”
Notably, Moody’s only predicts a mild recession. But given that interest rates are at a level not seen prior to the Great Recession and there is far more debt and malinvestment in the economy now than there was then, it remains unclear why we should expect a more moderate downturn than we experienced in ’08.
The Moody’s report also mentioned the “sizable unrealized economic losses” in many banks’ bond portfolios, saying they could cause investors to lose confidence. This is exactly what sank Silicon Valley Bank, Signature Bank and First Republic Bank.
The Federal Reserve managed to paper over the banking crisis with a bailout program. But the most recent Moody’s bank rating downgrades reveal the problem wasn’t solved.
“As you look ahead, it doesn’t feel like the pressure from interest rates being higher and overall monetary policy tightening is close to abating,” Moody’s associate managing director Jill Cetina said.
We’ve seen funding strains in the banking sector. The interest rate risk, I think, was something that the US banking sector was not prepared particularly well for, and because of that, we have some challenges at certain banks.”
Here is the list of downgraded banks:
- Commerce Bancshares
- BOK Financial Corporation
- M&T Bank Corporation
- Old National Bancorp
- Prosperity Bancshares
- Amarillo National Bancorp
- Webster Financial Corporation
- Fulton Financial Corporation
- Pinnacle Financial Partners
- Associated Banc-Corp
These banks were put on review for potential downgrade:
- Bank of New York Mellon Corporation
- Northern Trust Corporation
- State Street Corporation
- Cullen/Frost Bankers
- Truist Financial Corporation
- U.S. Bancorp
These banks had their outlooks shifted from stable to negative:
- PNC Financial Services Group
- Capital One Financial Corporation
- Citizens Financial Group
- Fifth Third Bancorp
- Huntington Bancshares
- Regions Financial Corporation
- Cadence Bank
- F.N.B. Corporation
- Simmons First National Corporation
- Ally Financial
- Bank OZK
The Big Picture
Debt problems in the banking sector are just a small part of a massive debt bubble blown up due to a decade of artificially low-interest rates in the wake of the Great Recession and a tidal wave of easy money during the pandemic.
Most people blame the shakiness in the financial sector and the broader economy on recent interest rate hikes, but the real problem started years ago.
After the Great Recession, Federal Reserve policy intentionally incentivized borrowing to “stimulate” the economy. But this monetary inflation inevitably led to price inflation. That forced the Fed to raise interest rates. The central bank managed to cool price inflation (for now), but it also threatens to pop the debt bubble.
In other words, high interest rates are only a problem today because the Fed incentivized so much borrowing yesterday. What the Fed giveth, the Fed taketh away, and it was inevitable that these debt chickens would come home to roost.
Banking isn’t the only sector being drug down by debt. The national debt now stands at $32.6 trillion. The US government has borrowed more than $1 trillion since the debt ceiling deal. The interest payment on all of the debt is set to rise at an alarming and unsustainable rate.
Corporations are levered to the hilt with the number of corporate defaults already larger than the total in 2022.
And American consumers are also buried under a mountain of debt. Credit card debt topped $1 trillion for the first time ever in the second quarter of this year. More concerning is the fact that consumers may be close to reaching their borrowing limit. After increasing at a frenetic pace for more than a year, revolving credit suddenly plunged in June.
With interest rates at levels not seen since 2006, it is inevitable that these debt bubbles will pop. The recent credit downgrades reflect this reality.
We saw what that looks like in 2008 and we know it won’t be pretty.
Article cross-posted from Schiff Gold.
Bypass Big Tech Censors
Two Storms, One Harvest
Every food crisis in living memory has been a one-shock event. The 2008 price spike was a commodity bubble. The 2020 shortages were a logistics failure. The 2022 grain scare was a war on one exporter’s ports. Each time, the system bent, adjusted, and recovered, and each time the experts assured us afterward that global markets are simply too big and too diversified to fail.
What nobody in Washington seems eager to discuss is that 2026 is shaping up to be something the modern food system has never actually faced. Two independent shocks, one climatic and one geopolitical, are converging on the same harvest cycle at the same time. Not sequentially. Simultaneously.
Start with the weather. The Pacific Ocean is currently building toward what forecasters now openly call a record event. NOAA’s Climate Prediction Center puts the odds of at least a strong El Niño near 88 percent, with roughly two in three odds it reaches “very strong” status, the tier reserved for perhaps three or four events in the entire satellite era. Every major global model now projects a median peak in Super El Niño territory, and most of them project it exceeding the 2015-16 event, which until now held the modern record. Sea surface anomalies were already brushing the super threshold in mid-July, months before these events normally peak. The atmosphere has already shifted into El Niño mode, and the event is forecast to crest in late fall and early winter.
This is not about “climate change.” It’s about the standard cycles of weather, and the cycle we’re currently in is one that has likely devastated societies in the past. We’re better prepared as a society today, but not all Americans are equally prepared.
Serious households have started doing the quiet math on their own. Grocery bills tell part of the story, and the forecast maps tell the rest, which is why long-term food storage has moved from fringe hobby to mainstream line item in the family budget, with established suppliers like Heaven’s Harvest seeing demand from people who five years ago would have rolled their eyes at the idea. That instinct is not paranoia. It is pattern recognition, and the pattern is worth walking through carefully.
Editor’s Note: Heaven’s Harvest IS a sponsor, but the warnings of this article are real and would be written even if we didn’t have a survival food sponsor. With that said, those who take advantage of what they offer can use promo code “Patriot” for 15% off.
The Fertilizer Clock Is Already Running
While the Pacific warms, the second shock has been unfolding in the Strait of Hormuz. The conflict with Iran turned the world’s most important energy chokepoint into a contested waterway, and the consequences reach far beyond the gas pump. Roughly a third of global fertilizer trade moves through Hormuz, and the disruption sent urea prices up 86 percent year over year by March, with a 53 percent jump in a single month.
The World Bank projects energy prices rising about 24 percent in 2026 and fertilizer about 31 percent. By its own accounting, fertilizer prices ran 35 percent higher in the first five months of this year than the same period last year.
Here is the mechanism the nightly news will not explain. Fertilizer is not a grocery item. It is a time-delayed input. The nitrogen a farmer in Iowa or Punjab could not afford to apply this spring does not show up as a problem this spring. It shows up as a thinner harvest six to twelve months later.
The World Bank’s own food security brief concedes that the effects of reduced applications earlier this season “are likely to become visible only later in harvest outcomes.” Translate that from institutional language into plain English and it means this. The damage is already done, it is already in the ground, and we are simply waiting for it to arrive on the shelf.
Now check the calendar. Six to twelve months from the spring planting season lands us squarely in late 2026 and early 2027. Which is precisely when the strongest El Niño in the instrumental record is forecast to peak, bringing its signature droughts to Southeast Asia, Australia, southern Africa, northern Brazil, and South Asia, the very regions that grow the world’s rice, sugar, and oilseeds.
The World Bank warns openly that a strong El Niño “could disrupt multiple crop belts simultaneously” on top of the conflict-driven input costs. Their baseline projection assumes the Middle East disruptions ease by autumn. What in the last two years of Middle East history suggests that assumption is safe?
The System Has No Slack Left
The comfortable answer is that global markets always adjust. But adjustment requires slack, and the slack is gone. Global cereal production is expected to decline from last year’s records even before El Niño does its work. The UN World Food Programme, hardly a den of right-wing preppers, is calling this the most significant disruption to its supply chains since Covid and the invasion of Ukraine, and its supply chain director put the stakes bluntly.
Today’s supply chain challenges are tomorrow’s hunger crisis.
There is also a political dimension that markets cannot price. When food gets scarce, governments do not behave like economists. They behave like politicians. Export bans, hoarding mandates, and panic buying at the national level turned the modest rice shortfall of 2008 into a global crisis, and analysts are already warning that import-dependent nations are the first dominoes.
The 2015-16 Super El Niño, a far weaker event than what is now forecast, threw tens of millions into food stress across Africa and Asia. This one is projected to be stronger, and it arrives with fertilizer already rationed by price and shipping lanes already contested by missiles.
What Joseph Knew
Scripture does not treat preparation for lean years as faithlessness. It treats it as wisdom delivered in advance to those willing to act on it.
Behold, there come seven years of great plenty throughout all the land of Egypt: And there shall arise after them seven years of famine; and all the plenty shall be forgotten in the land of Egypt.
Joseph did not respond to that warning with a hashtag or a committee. He stored grain during the years of abundance, and when the famine came, Egypt stood while its neighbors begged. The lesson is not that famine is certain. It is that the time to prepare is precisely when preparation still looks optional.
Nobody who filled a pantry in a year of plenty has ever regretted it, and nobody standing in an empty aisle has ever been glad he waited for certainty.
None of this calls for panic, and panic is the enemy of sound judgment anyway. It calls for the same unglamorous prudence our grandparents considered ordinary. Keep some cash margin, know your local growers, and put real food in deep storage while it is cheap and available, because the entire arc of this story is that cheap and available is a closing window.
Families looking for a straightforward place to start can visit Heaven’s Harvest and use promo code Patriot for 15 percent off long-term storable food. The forecasts may yet soften, the strait may yet reopen, and we should pray they do. But hope is a fine thing to hold and a foolish thing to eat.