“Black Tuesday” and the Great Depression

The Great Depression

• “Black Tuesday”. The Stock Market Crash of 1929

• The “Business Cycle”• The Causes of the

Great Depression• Life in the “Dirty

Thirties”• Prime Minister R.B.

BennettA typical poor family during the Depression in Western Canada

The Stock Market Crash

• On “Black Tuesday” Oct 29th, 1929, the Stock Market in NYC crashed.

• The initial crash actually occurred on “Black Thursday” Oct 24th, 1929.

The Stock Market Crash

• However, it is the crash on Oct 29th (five days later) that caused widespread panic around the world and marked the beginning of what many economic historians regard as the start of the “Great Depression”

The Business Cycle

• Any economy goes through four stages: Prosperity (Boom), Recession (slump), Depression and Recovery.

• The “Roaring 20s” is a typical example of “Prosperity”.

• As the stock market grew, investors could regularly “Buy low and sell high”

The “Business Cycle”

The Business Cycle

• However, when the recession hits, companies can’t sell as many products so they lay off their workers. Wages fall so demand for goods and services continues to decline until you get an all out depression (e.g. The 1930s).

• Depressions are rare. However, we have had various “recessions”; two quarters of negative economic growth (e.g. the early 1980s and 90s)

Demand for goods falls. Un-employment increases

The Causes of the Great Depression

• Over Production and Expansion

• Canada’s dependence on a few Staple Resources

• Canada’s dependence on the United States

• High Tariffs• Too Much Buying on

Credit• Too much Credit Buying of

Stocks

Model T’s coming off the assembly line

Over-Production and Over-Expansion

• Car Makers produced 400,000 cars in 1930. However, by 1930, Canadians already owned 1 million cars. (even in the high of the roaring 20s, only 260,000 were sold)

• Companies also over produced newsprint, radios, shirts and shoes.

• As goods started to get stockpiled in warehouses, companies began to panic and slowed down their production and laid off workers.

• Laid off workers across Canada no had little money to spend on products.

Assembly Line

Over-Production and Over-Expansion

• What is the Moral of the Story?

Produce only as many products as you can sell!Canadians did not have wages that were high enough to buy all the goods that factories were producing!

Canada’s Dependence on a few Staple Resources

• The Canadian economy was dependent upon the production of a few basic staple resources such as wheat, fish, minerals and pulp and paper.

• Regions which were dependent on one resource (Fish in the Maritime provinces and wheat in the Prairie Provinces) found themselves in deep economic trouble when the depression hit.

• In addition, Canada faced competition from other resource based economies around the world (e.g. Argentina and Australia). With other countries over-producing as well, there was a surplus of staple resources on world markets.

• The result? Prices fell resource based economies like Canada’s suffered.

Pulp and Paper Mill

The Canadian Fisheries

Drought in Western Canada• Western farmers had to face

terrible droughts in 1929,1931 and consistently between 1933-1937. Crops routinely failed.

• Farmer’s incomes fell. Secondary industries also suffered due to the decreasing demand for machinery and farming supplies.

• With little money to support themselves, many farmers could no longer afford to pay the mortgages on their farms.

• Railways and flour mills also suffered since there was little demand for railway grain elevators with the decreasing supply of wheat.

The Prairie “Dust Bowl”

Before After

Canada’s Dependence on the United States

• During the 1920s, the Canadian economy was heavily linked with the United States.

• 65% of Canada’s imports came from the U.S.

• 40% of Canada’s exports went to the U.S.

• Great Britain was no longer Canada’s main trading partner.

• When the depression hit the U.S., many American businesses went bankrupt. As a result, American companies decreased their demand for importing Canada’s natural resources and manufactured products.

• In short, when the U.S. economy suffers, we suffer too!

Canada is the Largest tradingPartner of the United States

High Tariffs Stopped Trade• During the late 1920s, many

countries adopted a policy of “Trade Protectionism”; that is, they applied “tariffs” (import taxes) on imported goods.

• They did this so that their domestic industries would not have to compete against cheaper foreign imports. This caused two things:

• Goods were more expensive than they should have been.

• As countries blocked international trade with high tariffs, international trade slowed down. This, in turn, slowed down industrial growth around the world

International Trade Slows Down

Too much Credit Buying

• “Buy now and pay later” schemes caused families to buy products that they really couldn’t afford.

• Many families went into debt as high interest payments from loans took over their lives.

• People who could not pay their interest on loans had their goods (e.g. furniture, appliances, cars) repossessed.

• Those who could not pay their rent were evicted from their apartments and left homeless.

Easy Credit offered to thoseWho could not pay $ back

Too much Credit Buying of Stocks

• Many people thought that the stock market was an easy way to get rich.

• As a result, they would put down 10% of their own money and borrow the other 90% on a sure thing.

• Buying “on margin” makes sense when the stock goes up since you can repay the loan with all the money you made on the stock market.

• But, if the market goes down, you can’t!

Out on the street with no money to eat

Too much Credit Buying of Stocks

• When the value of stocks began to fall on Oct 24th, 1929 people knew they were too heavily “leveraged” (bought too much on margin) so they began to panic.

• Investors all rushed to sell their stocks at the same time. This would cause the stocks to plummet 5 days later on Oct 29th.

People Panic and rush to the Banks to get their money out!

The Great Depression had Begun