This Day in History (December 23): How Woodrow Wilson Created the Federal Reserve (So We Don’t All Go Flying Off the Roller Coaster)

Okay, picture this: it’s the early 1900s, and America’s economy is basically a giant roller coaster—fast, exciting, and incredibly unsafe. There are no seatbelts, no brakes, and if something goes wrong, people just go flying off into the air like ragdolls. Whee! Fun for nobody!

This was the financial system in the United States before December 23, 1913. Banks were everywhere, but they were like those sketchy carnival rides run by a guy named Rick. You didn’t trust Rick. And for good reason—if a bank failed, everyone who had money in it lost everything. Imagine sprinting to the bank with your piggy bank in one hand and your grandma in the other, screaming, “SAVE ME!” Only to find out, nope, they’re out of money. That’s what we call a bank run, and they were happening all the time.

And here’s the kicker: when a bank collapsed, it wasn’t just the bank. Businesses couldn’t get loans, people lost their jobs, and the whole economy ground to a halt like a sad, broken merry-go-round. This all came to a head during the Panic of 1907—a financial crisis so bad it nearly took down the entire U.S. economy. At the last minute, one guy—J.P. Morgan, banker and human cash register—bailed out the country with his own money. It worked, but let’s be real, one rich guy shouldn’t have to save the economy. That’s not a system. That’s a plot hole in a superhero movie.

So, in 1913, President Woodrow Wilson said, “We need a plan that doesn’t rely on J.P. Morgan’s checkbook.” And on December 23, 1913, he signed the Federal Reserve Act, creating the Federal Reserve—our very own economic roller coaster operator.

Now, let me explain the Fed in terms you and my Aunt Linda can understand.

1. The Fed is the seatbelt. Banks fail? The Fed steps in with emergency money to keep people from flying off the ride.
2. The Fed is the brakes. When the economy is going too fast—like, “Uh-oh, prices are rising and my Starbucks latte is now $15”—the Fed raises interest rates to slow things down.
3. The Fed is the gas pedal. When the economy is sluggish—like, “Uh-oh, businesses are closing and I can’t even afford a lukewarm gas station coffee”—the Fed lowers interest rates to get things moving again.
4. The Fed is also the referee. It manages the money supply to keep things balanced. Not enough money? The economy seizes up like a car without oil. Too much money? You’re bringing a wheelbarrow full of cash to buy a loaf of bread.

The Fed is boring. It’s a bunch of economists sitting around looking at charts and nodding solemnly. But it works. Like a fire extinguisher in your kitchen, you don’t think about it when things are fine, but when the grease fire hits? You’ll be grateful it’s there.

Now fast-forward to today: The Fed is still doing its thing. It sets interest rates, manages inflation, and stops our economy from collapsing every time the world has a bad day. It’s stepped in during the Great Depression, the 2008 financial crisis, and more recently during the COVID-19 pandemic when everything shut down and we all learned what sourdough starter is.

But here’s where it gets weird. Some people, especially on the far right, want to abolish the Fed. “Get rid of the Federal Reserve!” they say, like it’s an annoying HOA board that keeps asking you to mow your lawn. These people think the Fed has too much power, too much money, and too many meetings about interest rates.

Let’s pause here and imagine what would happen if we actually abolished the Fed:

Scenario One: Bank Runs Are Back, Baby!

Without the Fed, there’s no safety net for banks. So when rumors start flying—“Hey, Rick’s Bank might be in trouble”—everyone panics. It’s like when there’s a snowstorm and everyone suddenly decides they need 17 loaves of bread. You sprint to the bank, only to find out Rick’s out of cash, and so is everyone else.

Scenario Two: Interest Rates Gone Wild

Without the Fed setting interest rates, it’s total chaos. One month, you can get a mortgage for 1%. The next month? 25%. You’ll need a second mortgage just to pay off the first one. Buying a car? Forget it. You’ll be riding a scooter and convincing yourself it’s “good exercise.”

Scenario Three: Inflation Armageddon

Without the Fed managing the money supply, we’re one step away from needing a backpack full of $100 bills to buy a pack of gum. “Oh, you want a Snickers? That’ll be $750. Small bills, please.”

The point is: the Fed is the seatbelt. The Fed is the brakes. The Fed is the reason our economic roller coaster hasn’t flown off the tracks more than it already has. Yes, it’s boring. Yes, economists are the only people who get excited about it. But you know what’s really boring? Financial panics.

So, on December 23, 1913, Woodrow Wilson and Congress gave us something we desperately needed: a backup plan. A referee. A safety net.

And today, even though some people want to take a sledgehammer to it, the Federal Reserve is still here—keeping the U.S. economy buckled in and on track. So the next time you hear someone say, “We should get rid of the Fed!” just smile and imagine them flying off a roller coaster, holding a wheelbarrow full of cash and shouting, “THIS IS FINE!”

Because that’s what life would look like without it.