The best thing would be if we had some open source (and heavily vetted) software that could do the encryption (with 512 bit keys or whatever) locally and then just back up the encrypted results to cloud storage where they Google can print them on a billboard if they like.
@killerclick: best thing is if the OS company respected individual privacy. Google is notorious on all platforms from hording user's information, hence why I could not own a Google based phone. The trust factor I have with them is zero and if you can't trust the company then a few extra features here and there are irrelevant.
I checked my HTC One, there are two options, Backup and Reset. The backup option states backup to the cloud and mine I disabled from the beginning since it has the word cloud in it. That should be all you need to do.
@killerclick I use Truecrypt to back up sensitive files to Dropbox. Not that it helps in this scenario. When Google backs up your data, most of it is apps and photos (I don't believe it backs up app data). There are others like the wifi passwords that it backs up. So you need selective encryption. The next question is who do you want this data protected from? Google? The Govt.? If yes, then you will need to provide the password. Google would have to do some fairly sophisticated threading to ensure that the rest of your data that is unencrypted can be restored if you forget the password. Too much effort. They will probably just use the hammer. If you forget your password, you lose all of it.
Windows 8 is doing this too. I brought a brand new laptop to an out of town location where I previously used another laptop, and I didn't have to enter a password to access the WPA2 password protected network.
If you already have the backup running you cannot simply turn it off to remove your information. Google already has it and it is stored forever. You need to turn it off AND change all your network information AND not turn it back on AND remember if your phone gets run over or falls in a lake that all of your settings, information, apps, phone numbers, etc. are lost forever.
Who cares about wi-fi passwords? If someone has a password to my wi-fi he still needs to get in its range to access it... And even then he will have access only to my internet connection and my collection of movies and music in shared folders... Really sensitive informations like firefox encryption key for example aren't backed up.
If you want your wi-fi to be 100% safe just set your router to connect only with white-listed devices, but then you will have to open your router's settings panel whenever you want to connect a new device.