That web page is part of a site pushing gold and precious metals and related securities. Since many people seem to think a flight to safety means buying gold, these sites are usually guilty of fear-mongering. The only difference with this article is that it is unusually articulate.
However, there is a fundamental problem I have with Prof. Fekete's claims: He contradicts history.
Here are my primary complaints:
1. The FASB didn't adopt any mark to market rules for any bank or corporation until after the S&L scandal. So the entire idea of applying mark-to-market rules just to Treasuries held by banks as Tier-1 capital in 1960 would have probably been considered an outrageous exception - assuming it was ever considered.
2. If a bank sold its Treasury holdings, where would they put the proceeds? The government justly requires banks to hold a percentage of all deposits in safe, liquid assets. Likely any bank selling their Treasury holdings would just have to purchases newer issues with the proceeds. The only other option would be to hold cash. Either way with interest rates generally declining for the past few decades, flipping your 20-year Treasury issues would only allow you to realize a relatively small short-term gain at the cost of future revenue - not a fiscally conservative practice.
3. The author seems to forget that the U.S. government has already demonstrated its willingness to bail out the FDIC to avoid the risk of another bank collapse.
Arguably precious metals might be a good hedge against inflation; but a sack of gold likely won't buy you a loaf of bread (at least for a while) if the U.S. government allows the FDIC to fail...
Thanks. Interesting comments. Yes, the article was from Kitco which is a pro-precious metal website, but we can all think and decide, like you, if the article's arguements make sense. thanks, wheelbarrow