The bank presents itself as part of the US government to the public and many make the mistake of thinking that it is. The only perview the US government has over the Fed is a presidential appointee in the form of the Chairman. Try doing a freedom of information request on the Fed and you will be refused on the basis that it is not a federal agency! Hardly what I would call full transparency and accountability.

Today's Fed didn't just come about. Several times over history bankers used their power and influence to create this system but faced opposition from great patriot politicians.

Consider this quote:

“If the American people ever allow private banks to control the issue of their currency, first by inflation, then by deflation, the banks…will deprive the people of all property until their children wake-up homeless on the continent their fathers conquered…. The issuing power should be taken from the banks and restored to the people, to whom it properly belongs.” – Thomas Jefferson in the debate over the Re-charter of the Bank Bill (1809)

Another example is President Andrew Jackson, who considered 'killing' the 2nd Bank of the US (an earlier type of the Federal Reserve System) his most important legacy.

And finally, Woodrow Wilson the man who damned us all by signing the 1913 Federal Reserve Act, a few years later wrote:

“I am a most unhappy man. I have unwittingly ruined my country. A great industrial nation is controlled by its system of credit. Our system of credit is concentrated. The growth of the nation, therefore, and all our activities are in the hands of a few men. We have come to be one of the worst ruled, one of the most completely controlled and dominated Governments in the civilized world no longer a Government by free opinion, no longer a Government by conviction and the vote of the majority, but a Government by the opinion and duress of a small group of dominant men.”

This is probably a really good time to invest in developing world junk bonds.

As an alternative to buying treasuries, you could use a bank, but keep in mind that FDIC only covers accounts up to $250k and beyond that, you're exposed to the bank's credit risk, admittedly small, but a very large concern for an individual/company with millions in cash. Banks don't work the same way for big accounts as small ones, you actually have to weigh things like "will my money be available" and "will the bank default".

If the situation gets bad enough, people will start warehousing cash in bunkers, but that's expensive and I highly doubt it could be done for less than 0.05%/year or whatever slightly negative rate the yield is on these things.

Banks provide a valuable service by offering depository safekeeping of funds. If we stay in this zero-interest environment much longer, expect to see more fees on checking accounts as net interest margin (what the banks earn between their borrowing costs and their lending prices) continues to fall.

If you don't want to give the money to the treasury where else do you put it? Your options are probably under your mattress or in a bank. Any bank has higher default percentage than the treasury.

I'm not sure what is distorted or artificial about what the FED does. They try to stabilize the growth of the money supply so that we have near constant inflation, and full unemployment. If the Fed were to keep rates artificially low we would see inflation, if they kept them artificially high we would see unemployment. Right now because of the zero lower bound we are seeing much more of the latter than the former.

If the Treasury default risk is smaller than the alternative expected costs for alternative storage of the same dollars (either bank failure risk or, for instance, cost to store and risk of loss of physical bills), then there can be an advantage to 0-interest treasury securities. There is no risk and cost free way to store dollars.

For individuals, treasuries offer better yields than CDs and treasurydirect.gov makes it very easy to buy and sell them.