OK, let's break this down. There is a scenario in which everything denominated in the dollar collapses, because the dollar is being destroyed. That is the scenario you are focusing on in the above post. And you're right, of course: in that scenario both dollar accounts in banks and dollar-denominated Treasury Notes would be wiped out. As a side note, that would be OK and hunky-dory, of course, for us as Permanent Portfolians, because our gold would do well.Desert wrote:You may be right, or you may be wrong. When it comes to end-of-republic promises, I won't put much value in FDIC or treasury promises. The most likely scenario would be inflating away the obligations, in which case both would suffer more or less equally.
But there are other scenarios.
Many of them.
I can envision a scenario wherein there's some bad banking problems, or a crisis or war, and in the end the decision is made that account holders will get 80 cents on the dollar. We've got to pull together as a nation and share the load, doncha know. Everybody's hurting, and it's only fair to share the pain.
Were this to happen, it would not cause any big long-term ramifications for the government. (At least not inevitably, in and of itself I mean -- it could make people mad and trigger a revolution or something, but anything could trigger a revolution). Things would go on; no big deal.
Defaulting on Treasury Notes would be a much more serious decision, with much more serious consequences. The aftermath of a Treasury default would see major changes in the government's finances. Anyone looking at the government's current finances can see that issuing Treasury Notes is a major, crucially important part of how they are funded and are able to operate. This is in contrast to the FDIC, which is a relatively small, minor cabinet agency that does not play a direct critical role in the government's financial structure.
Issuing notes and bonds is an essential tool for the gov't. Getting rid of that tool would be akin to, oh, let's say repealing the income tax. It could be done, things could be rearranged to accommodate it (for example maybe just conjure more money more quickly, as you suggest), in theory it's possible, but it would be a massively consequential decision.
So that's the logic of it. If there were a Venn Diagram called Government Crises, the circle labeled "Wherein the Gov't Defaults on its Own Treasury Notes" is a small one, entirely subsumed in the much larger circle labeled "Scenarios In Which the FDIC Fails to Bail Out Banks, Either in Whole or In Part." It's very small, and up in the far extreme corner of the bigger circle. Things would have to get awfully dire for the government to choose to default. It would be a desperate act, like cutting off one's leg to try to save one's life while in a disease-infected jungle far from any sterilization.
More solidly, I guess I feel that I am more likely to be able to see a default scenario coming than a bank failure/seizure/something-less-than-perfect-wherein-depositors-lose-money scenario. So, with Treasuries I will be able to get out in time and save my wealth, whereas with banks the bank can quite suddenly just lock its doors, shut down its website, and thus lock me out and, well, what could I do? As you say, I could be right, or I could be wrong.