(Schiff)—What’s going on with US banks?
Over the last month, loans outstanding in the Federal Reserve bank bailout program increased by $17.24 billion. It was the second month we’ve seen borrowing from the Bank Term Funding Program (BTFP) surge. And the pace of borrowing is increasing.
Between December 13 and December 20, the balance in the BTFP grew by $7.57 billion.
As of Dec. 20, the balance in the BTFP stood at just under $133.34 billion. It’s the largest balance since the program was created in March.
The increase in banks tapping into the BTF started in November. As you can see from the chart, borrowing had leveled off in August before the sudden spike in November. Keep in mind that banks were still tapping into the bailout even as the total balance in the program plateaued. Some banks were paying off loans as others borrowed.
This surge in bank bailout borrowing would seem to indicate more banks are struggling in this high interest rate environment, and the financial crisis that kicked off in March continues to boil under the surface.
But thanks to the Fed bailout, the crisis remains “out of sight, out of mind.”
WHAT IS THE BTFP?
After the collapse of Silicon Valley Bank and Signature Bank, the Fed created the BTFP, allowing banks to easily access capital “to help assure banks have the ability to meet the needs of all their depositors.”
The BTFP offers loans of up to one year in length to banks, savings associations, credit unions, and other eligible depository institutions pledging US Treasuries, agency debt and mortgage-backed securities, and other qualifying assets as collateral. Banks can borrow against their assets “at par” (face value).
According to a Federal Reserve statement, “the BTFP will be an additional source of liquidity against high-quality securities, eliminating an institution’s need to quickly sell those securities in times of stress.”
The ability to borrow against the face value of their bond portfolios is a sweetheart deal for banks given the big drop in bond prices over the last year-plus.
Fed interest rate increases to fight price inflation decimated the bond market. (Bond prices and interest rates are inversely correlated. As bond prices fall, bond yields increase.) With interest rates rising so quickly, banks could not adjust their bond holdings. As a result, many banks have become undercapitalized on paper.
According to the FDCI, unrealized losses on securities climbed to $683.9 billion in Q3. That represented a 22.5% jump from the second quarter. Rising mortgage rates reducing the value of mortgage-backed securities drove the increase.
The BTFP gives banks a way out, or at least the opportunity to kick the can down the road for a year. Instead of selling bonds that have dropped in value at a big loss, banks can go to the Fed and borrow money at the bonds’ face value.
PAPERING OVER THE PROBLEM
The creation of the BTFP allowed the Federal Reserve to paper over the banking crisis its interest rate hikes created. But what happens when the loans come due?
In the first week of the BTFP, banks borrowed $11.9 billion from the program, along with more than $300 billion from the already-established Fed Discount Window.
The Discount Window requires banks to post collateral at face value and loans come with a relatively high interest rate and must post collateral at fair market value. While Discount Window borrowing surged in the weeks after the collapse of SVC and Signature Bank, the balances were quickly paid back down, and Discount Window borrowing returned to normal levels.
One would expect borrowing from a bailout program to slow down considerably once the crisis passed. But banks never stopped tapping into the BTFP. And borrowing suddenly accelerated in November.
Notably, the sudden spike in bailout borrowing happened even as the bond market rallied and bonds regained some of their value as the Fed eased off the rate hike accelerator. This ostensibly provided some relief on banks’ balance sheets.
Granted, the $133 billion outstanding appears insignificant compared to the $22.8 trillion in commercial bank assets held by the 4,100 commercial banks in the US. The fact that some troubled banks are still tapping into a bailout program nine months after the crisis doesn’t necessarily mean the banking system is on the verge of collapse. But while the bailouts might not be a fire, it’s at least smoke. There are still problems in the banking system bubbling under the surface.
This is a predictable consequence of the Fed raising interest rates to battle price inflation.
Artificially low interest rates and easy money are the mother’s milk of this bubble economy. With everybody from corporations, consumers, and the federal government buried in debt, this economy and the financial system simply can’t function long-term in a high interest rate environment. The banking crisis earlier this year was the first thing to break as a result of rising interest rates. Other things will follow. We’ve already seen some tremors in the commercial real estate market.
While you might be tempted to blame the Fed’s recent rate hikes for these issues, the real problem started years ago.
After the Great Recession, Federal Reserve policy intentionally incentivized borrowing to “stimulate” the economy. It cut rates to zero and launched three rounds of quantitative easing. After an unsuccessful attempt to normalize rates and shrink its balance sheet in 2018, the Fed doubled down on easy money policies during the pandemic. This monetary inflation inevitably led to price inflation. That forced the Fed to raise interest rates. The central bank appears to have cooled price inflation (for now), but it also broke the financial system.
In effect, the Fed managed to paper over the financial crisis with this bailout program. It basically slapped a bandaid on it. But it has not addressed the underlying issue – the impact of rising interest rates on an economy and financial system addicted to easy money.
And it’s only a matter of time before something else breaks.
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.