Let’s see, banks are in trouble because they have a certain amount of bad loans that probably won’t be repaid. Banking regulations may force them to write off those bad loans possibly leading to bank insolvency. This writing off of bad loans is analogous to burning money.
In a fiat money system, money can be easily replaced - the fed can print it and give it to the banks that are in trouble, i.e. “kick the can down the road” and in that scenario it’s the right thing to do. The cost of doing this is “moral hazard”, the benefit is saving millions (not just the bank) from misery.
The moral hazard, (irresponsibility on the part of the people who run the banks) can be taken care of by instituting some type of punishment for the people involved, so that it’s an example to others in the future to be more careful about who they loan money to.
The real hazard in the scenario you share is Hyperinflation.
Yes, that is where I believe it is going. I think cash will first be very valuable, until it’s next to worthless.