Silicon Valley Bank Failure a Sign of Deflation

By now, most everyone who keeps up with financial news has learned of the collapse of Silicon Valley Bank – the largest U.S. bank failure since 2008.

A well-known financial TV host links that bank failure with deflation (CNBC, March 10):

There’s nothing more deflationary than the collapse of a highly-indebted bank, says [Mad Money host]

Elliott Wave International agrees that the failure of Silicon Valley Bank is part and parcel of a developing deflation.

Bank runs were widespread during the deflationary depression of 1929-1933, and this quote from Robert Prechter’s Last Chance to Conquer the Crash starts off with that:

Between 1929 and 1933, 9000 banks in the United States closed their doors. President Roosevelt shut down all banks for a short time after his inauguration. In December 2001, the government of Argentina froze virtually all bank deposits, barring customers from withdrawing the money they thought they had. In 2013, banks in Cypress were ordered closed. Sometimes such restrictions happen naturally, when banks fail; sometimes they are imposed. Sometimes the restrictions are temporary; sometimes they remain in place for a long time. In 2008-2009, some U.S. banks came under pressure of insolvency, just as the first edition of Conquer the Crash predicted. Fed bailouts kept most of them open. In the next depression, bank runs and mass closings are far more probable. The first edition of CTC also noted that depositors would become concerned about bank risks and move their money from weak banks to strong banks, making the weak banks weaker and the strong banks stronger. This is just what happened in 2008-2009. A Washington Post article noted that one of the banks listed in the first edition of CTC as safer than most had received a windfall of migratory deposits. When the next wave of banking problems hits, the shift will be even more pronounced.

Many people believe their deposits are safe when they see a bank’s Federal Deposit Insurance Corp. sticker.

However, during a time of widespread bank failures, it’s highly unlikely that the F.D.I.C. will have enough resources to cover all deposits.

An important step you can take now is to make sure your deposits are with a financially strong bank (or banks). Last Chance to Conquer the Crash provides insights on this subject.