(Mises)—When Silicon Valley Bank and other banks failed earlier this year, the debate over the sustainability of fractional reserve banking resurfaced. Under fractional reserve banking, banks keep only a fraction of customers’ deposits in reserve. The difference is bank credit, such as government debt, mortgages, business loans, and many other kinds of loans. This practice leaves the bank open to a run, in which panicky depositors attempt to withdraw their funds from the bank en masse but the bank doesn’t have the cash on hand. The following FRED graph gives an idea of the extent of the mismatch between deposits and reserves.
But we shouldn’t worry about bank runs because the government is here to help. In the US, the Federal Deposit Insurance Corporation (FDIC) insures checking accounts up to $250,000, and the banking system is regulated by a host of agencies, including the Federal Reserve, which also acts as a lender of last resort. These measures are intended to prevent and mitigate bank runs for the benefit of both the banks and their depositors. Though it should be obvious that they only conceal the fundamental problem and disperse the costs.
Murray Rothbard was a detractor of fractional reserve banking. He wrote on the changing legal definition of bank deposits—how they originated as warehousing relationships, or “bailments,” but over time came to represent debtor-creditor relationships. Ludwig von Mises also pointed to bank issues of fiduciary media (the proportion of deposits that cannot be redeemed), which artificially lower interest rates, as the cause of business cycles.
Nevertheless, a faction of Austrian and Austrian-adjacent scholars defends fractional reserve banking, saying that not only can it be sustainable, but it can also be beneficial in maintaining monetary equilibrium. I’m not convinced by this view, but it’s worth taking a closer look at one point that these scholars often make. They say that clear communication between the bank and its customers would solve the hairy problem of bank customers expecting the money at par on demand.
With such an agreement, “fractional reserve free banking” proponents say, depositors would know that they are effectively creditors to the bank and that the bank is therefore a debtor to them. This means that the deposits are technically and legally owned by the bank and that what the depositor has is technically and legally a callable loan to the bank. Clear agreements would mean that depositors understand that there is a chance that they won’t be able to get their money (actually, the bank’s money, in this view) immediately in the event of a bank failure. Of course, central banking and government-backed deposit insurance diminish customers’ expectation of bank responsibility—how much should banks be expected to disclose about the deposit relationship if most of their customers’ deposits are guaranteed by the government anyway?
In line with other fractional reserve free banking proponents, George Selgin argues that modern depositor agreements—the dense legalese most people skip—already establish this transparency.
And he is right. Bank of America does make that disclaimer in its deposit agreement. I decided to take a closer look at other big banks’ fine print to see how standard this language is. What I found is that it isn’t standard and that even when a bank (including Bank of America) does use that language, it is still ambiguous because of other language in the document, especially in regard to the availability of funds. One bank’s fine print doesn’t even mention the possibility of bank failure and FDIC receivership.
Here is what I found.
JPMorgan Chase does not have debtor-creditor language. In fact, in the first section of the agreement, in which common terms are defined, it says that the “available balance” is “the amount of money in your account that you can use right now.” This does not indicate that Chase “owes” its customers the money or that withdrawals could be delayed. Chase explicitly calls its deposit customers “account owners” and say they have “complete control over all of the funds in the account.”
Bank of America describes the deposit relationship as “that of debtor and creditor,” but this language does not appear in its online banking service agreement, which only says that the online “Services may also be affected by your Deposit Agreement.” Bank of America doesn’t say much about the availability of demand deposits but is very clear about time deposits: “When you open a time deposit account, you agree to leave your funds in the account until the maturity date of the account.”
Wells Fargo does not use the debtor-creditor language to describe its deposit relationship. Like Bank of America, Wells Fargo says that account owners have “complete control over all of the funds in the account.”
Citibank very clearly defines its relationship with customers: “Citibank’s relationship with you is debtor and creditor.” But Citi also refers to the customer’s balance as the “‘Available Now’ balance,” even though a critical mass of depositors could run to withdraw their funds and find that the money isn’t so available.
US Bank does not use the debtor-creditor language to describe the deposit relationship. In fact, early in the agreement it refers to the “Owner’s Authority” of depositors, which includes “the power to perform all the transactions available to the account.” US Bank also says that the customer’s funds are available immediately: “‘Available Balance’ means the amount of money that can be withdrawn at a point in time.”
PNC does not use the debtor-creditor language to describe the deposit relationship. It does not even have a section on the possibility of bank failure and the process of FDIC receivership, which is in all the above banks’ deposit agreements.
So, only two of these six major banks have the debtor-creditor language, and the two that do have it introduce ambiguity by promising at-par-on-demand availability of funds. We are still a long way from clear communication about the status of depositors’ money, if we can call it theirs at all.
About the Author
Dr. Jonathan Newman is a Fellow at the Mises Institute. He earned his PhD at Auburn University while a Research Fellow at the Mises Institute. He was the recipient of the 2021 Gary G. Schlarbaum Award to a Promising Young Scholar for Excellence in Research and Teaching. Previously, he was Associate Professor of Economics and Finance at Bryan College. He has published in the Quarterly Journal of Austrian Economics and in volumes edited by Matthew McCaffrey and Per Bylund. His research focuses on Austrian economics, inflation and business cycles, and the history of economic thought. He has taught courses on Macroeconomics and Quantitative Economics: Uses and Limitations in the Mises Graduate School. He is the author of two children’s books: The Broken Window and Ludwig the Builder. His commentary appears regularly in the Mises Wire and Power & Market.
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.