and it is not possible to declare it so without collapsing the whole financial system to say nothing of dozens of other industries.
You have not demonstrated that so far. Outright ban is one thing, and is indeed not viable. A strict permit regime with mandatory backdoor keys is perfectly viable.
As to controlling everyone with fear, how has that worked out in the P2P piracy struggle? Not at all?
For one thing, the people who are pirating stuff are getting something immediately beneficial out of it, and its value is readily understandable to everyone. Not so with encryption. If you ban/regulate it, 99% of the population simply won't know where to start, or why they even want to - with no premade stuff like Tor bundle readily available etc.
For another thing, penalties for piracy aren't all that harsh in practice. It will most likely be a civil suit, not criminal, and even then they'll offer to settle. Realistically, people know that unless they run a tracker, they will get away with a fine of a couple of thousand or so even in the worst case. Now make it a mandatory 10 year stint in a federal prison for even a single downloaded track, and make the first couple of cases front page news, and then it'll be comparable to what I'm talking about.
What is more, the politics on this issue do not favor the NSA unless they can get people to stop talking about the NSA.
Only at this particular moment - and even then I think you haven't kept and eye on the polls, where 50% of electorate is perfectly happy with whatever privacy intrusions they may have to live with if that makes them "safe" (because the NSA told them it is necessary). And they always have several jokers which have yet to be beaten here in US - "think of the children", "the terrorists hate our freedoms" etc. Come next 9/11 (and it will happen, it's only a matter of then), they will have all the support they need to push that stuf through.
Oh, and in case you haven't noticed, it's already happening. Haven't you seen FBI pushing for backdoors to cellphone encryption? All they need is a few more hawks in Congress, and they will make it a law.