Welcome your new FRB overlords

The Federal Reserve bank is not part of the US government, but thanks to the “Restoring Financial Stability Act of 2010”, the Federal Reserve now has jurisdiction over “gift cards”, even if they aren’t issued by a bank and the money never goes through the Federal Reserve’s money transfer systems.   Up until now, the FRB’s regulatory powers only extended to its own members.   (Credit Unions, American Express, and Discover card would be examples of entities which the FRB has no control over)

http://www.federalreserve.gov/consumerinfo/wyntk_giftcards.htm

Here is a summary of the bill, detailing the creation of a “watchdog agency within the Federal Reserve”

Bill Summary

The Tom Taylor newsletter today mentioned this law goes into effect August 22nd 2010. According to his source, this would apply to gift certificates as well (I’m not so sure of that). In my local market there is a weekend show hosted by Jim Masters that spends about 8 hours selling half off gift certificates to local restaurants, vacation resorts, etc…

The main point of the law is that the money in the card can’t expire in less than five years, and there are new limits and disclosure rules on fees.

The Federal Reserve has an interest in this beyond “protecting consumers”. When you take $100 in Federal Reserve money and buy a gift card, the business has $100 and you have a card worth $100. Just like that, more dollars have been created out of thin air. The FRB has no way to measure or control how much “off the books” dollars are sitting around.  The IRS can’t “seize” the value held in the card.  You can’t prevent or track the money leaving the United States via gift cards.   Note that there is no requirement that those funds be held in “reserve” or “escrow” to protect the gift card holder in the event the company goes out of business – that would actually have been a useful consumer protection.

 Creating fiat money is something only the Fed is allowed to do.

The fact that the FRB now has jurisdiction over book stores is the troubling part. Note that the FRB’s explanation doesn’t mention the “or else”. The FRB has no way currently to enforce these new police powers – it is not part of the US Treasury department.