Act I The Creation of the Fed The Federal Reserve System, often referred to as the Federal Reserve or simply "the Fed," is the central bank of the United States. It was created by the Congress to provide the nation with a safer, more flexible, and more stable monetary and financial system. The Federal Reserve was created on December 23, 1913, when President Woodrow Wilson signed the Federal Reserve Act into law. Today, the Federal Reserve's responsibilities fall into four general areas. Conducting the nation's monetary policy by influencing money and credit conditions in the economy in pursuit of full employment and stable prices. Supervising and regulating banks and other important financial institutions to ensure the safety and soundness of the nation's banking and financial system and to protect the credit rights of consumers. Maintaining the stability of the financial system and containing systemic risk that may arise in financial markets. Providing certain financial services to the U.S. government, U.S. financial institutions, and foreign official institutions, and playing a major role in operating and overseeing the nation's payments systems. Upon its creation in 1913, twelve central banks all act as a lender of last resort for their regions. Federal Reserve Board is above these central banks that act as a regulatory agency. Originally FRB was only allowed to veto decisions not make them. This caused paralysis in the original system as they all couldn’t agree further fuel for the beginnings of the great depression. The Great Depression World War 1 had only ended 10 years after the start of the Great Depression in 1929. All of Europe bankrupted themselves after WW1 because they financed it by borrowing. Their Debt to GDP levels were something like 200-300%. They paid for it by inflating the debt away. The Allies demanded reparations to Germany because they owed the U.S. The U.S. refused to forgive these debts. The Germans thought this was completely unfair and never wanted to pay. Debt to GDP Ratio: Most countries around the world rely on sovereign debt to finance their government and economy. When this debt is used in moderation, it can position an economy to grow more quickly. This is much like using debt to finance a business. The debt-to-GDP ratio is a financial measurement for a country, similar to a business' debt to equity ratio. Both ratios are designed to help interested parties determine if a country has too much debt. It is a measurement of financial health. There is no set ideal ratio for a country to have to indicate it's financial health. However, when the ratio is used with other information, it can help you develop a working concept of a country's health. This can help you decide whether a country's economy is worth investing in. U.S.'s debt-to-GDP ratio is expected to eclipse 120% this year. To put these figures into perspective, the U.S.’s highest debt-to-GDP ratio was 121.7% at the end of World War II, in 1946. Debt levels gradually fell from their post-World War II peak, before plateauing between 31% and 40% in the 1970’s—ultimately hitting a historic 31.7% low, in 1974. Ratios have steadily risen since 1980 and then jumped sharply, following 2007’s subprime housing crisis and the subsequent financial meltdown. One of the consequences of WW1 was massive inflation which caused hyper inflation in the early 1920’s. Central Bankers spent most of the mid to late 1920’s trying save the British pound from collapsing. They actually went back to the Gold Standard because they thought it was the cure for hyper-inflation. They were wrong. The world suffered from the shortage of gold in the 1920’s as there was not enough to go around (2/3 of the Gold was with the U.S. because of WW1, capital flights, payments etc…) Main problem was Britain went back to the old exchange rate for XAU/GBP (Gold / British pound.) Which…