this is absolutely spot on, especially the firmware. nobody talks about it and the attack surface is huge.
just to be explicit, hardware backdoors exist as well :)
Encryption isn't going to help stop a guy with a stick from beating the information out of you. A functional state, however, can help prevent such things from happening.
Depends on what you want to keep secret and mean by secure. Homomorphic encryption (http://en.wikipedia.org/wiki/Homomorphic_computing) schemes work even when an end-point is untrusted. For example a game of mental poker (http://en.wikipedia.org/wiki/Mental_poker) each party/end-point is untrusted by it may still be a "secure" system.
Or consider "secure" to mean that your identity remains private if you so wish. One could certainly create a crypto system that binds an actor to an act without any end-points learning the identity of the actor, but still allowing the actor to take credit if they so wish.
On the other hand, Edward Snowden thinks he can secure information effectively from attempts to crack it. He probably had practical knowledge of the day-to-day capabilities of the NSA when he worked there. There is no reason that most everything that you and I store and transmit can't be equally well-protected.
They could also just plant bugs/cameras and watch you type in passwords, or rent the room beside you and set up Van Eck/TEMPEST equipment. They could mess with the power socket in the wall to do encryption analysis as well or replace your powerbar with an evil bar.
You would need guards to watch your room, a SICP tent and TEMPEST proof NATO standards laptop, OpenBSD to softraid encrypt the discs leaving no bootloader (or carry around the bootloader on a usb or CD), and you would have to custom manufacture the equipment yourself in Taiwan to ensure no backdoors and pick it up in person, or manually solder in hardware firewalls to block signals from leaking out of proprietary blobs.
Even poorly-executed encryption will stop _some_ forms of attack, some of the time.
But a failure to provide legal protections will render even strong crypto a weak shield.
Property laws and strong fences and effective policing make for good neighbors.
No crypto-system is truly secure unless BOTH sides can be trusted. If either one is even remotely possible to compromise, then that will happen. In the case where one of those parties is well-known and has something to lose, you can be certain that the powers-that-be will focus their attention on that party. (nb: Skype)
SO yeah, crypto en masse will make casual collection harder, but it's not even halfway towards what is needed. There has to be an awareness of the downside to reduced privacy that can be tangibly grasped by the populace otherwise we're all pissing in the wind. Any crypto-system that requires anything approaching trade-craft on the part of the user is probably going to fail miserably.
I was fresh out of the military when the USG was proposing the widespread deployment of the "Clipper" chip that included key-escrow as a fundamental feature for LEA access to keys. That failed, but I would not be surprised to hear that we got it anyway through quiet "arrangements" with major crypto-system equipment/software providers.
Have YOU inspected your CPU/Firmware/OS/Applications for backdoors? Even with the full source code?
It's a hard problem and requires a lot more than just neat technology to solve. In fact, it probably can't be solved with technology at all.