Transcript “Black Tuesday” and the Great Depression

“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.
Bennett
A 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 OverExpansion
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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 OverExpansion
• 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
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•
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 19331937. 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.
Before
After
The Prairie “Dust Bowl”
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 trading
Partner 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 those
Who 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
Out on the street with
down, you can’t!
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