The Great Depression The Stock Market Crash. Black Thursday Like World War I, the Great Depression was sparked by one incident, but caused by many others.

The Great DepressionThe Stock Market Crash

Black Thursday

•Like World War I, the Great Depression was sparked by one incident, but caused by many others.

•The ‘spark’ was the crash of the Stock Market.

•On Wall Street (The New York Stock Exchange) crashed on Black Thursday, October 26, 1929.

Black Tuesday

•Early the next week, the Canadian economy was effect and the Montreal Stock Exchange crashed on Tuesday, October 29, 1929.

•This event marked the end of the prosperous 20s and the beginning of the Dirty Thirties or The Great Depression.

Stocks 101•Here’s what you NEED to know about the

Stock Exchange:

•Stocks are a way in which you can invest in a business.

•When a business is profitable, the business gives some of its profits to the stockholders.

•Every business has thousands of stocks available to the public.

Stocks 102• But it has evolved into something more

complicated:

• While businesses only post their ‘official’ profits every quarter - speculators guess at the value of a company on an instant-by-instant basis.

• So while you can buy one stock at 10:00 a.m. for $2, that same stock could be worth $3 an hour later. Or it could be worth only $1.

Stocks 103

•The sad truth is that the value of a stock was no longer directly linked to the value of the products of the company.

•Many things factor into why a stock rises and fall (for further information on how stocks works - get a degree in Business).

Causes of the Great Depression:

Causes•Over-Production and Over-Expansion

•Canada’s Dependance on a Few Primary Products

•Canada’s Dependance on the United States

•High Tariffs Choked Off International Trade

•Too Much Buying on Credit

•Too Much Buying STOCKS on Credit

Over-Production and Over-Expansion•The 1920s was an incredibly

prosperous time for Canada.

•Businessmen assumed that this would continue, so they tried to push their luck.

•Industries expanded their business (without thought as to how they were going to sell their product, or to whom).

Over-Production and Over-Expansion

•So businesses began to stockpile their surplus.

•When business had a surplus that was waiting to be sold - there was less need for as many employees.

•So they fired some of the employees.

Over-Production and Over-Expansion•To maintain profits, they fired some

employees that they didn’t need (they already had a bunch of a products that were waiting to be sold...so why pay someone to wait?).

•But now these now-fired employees had less money to buy any products.

•So these companies were selling even less (of their over abundance of products) and so they had to let more of their employees go!

Dependancy on a Few Primary

Products•Canada was doing so well in 1920s because of a few primary or basic products - ‘staples’.

•Canadian Staples in the 1920s were: Wheat, Fish, Minerals, Paper Products.

•So long as people around the world needed these products (and why wouldn’t they? Why would that ever change?) things were great!

Dependancy on a Few Primary

Products•However, when the depression began - it was a slide downwards.

•When money became tight - people would stop buying these staples (or buying less).

•When they stop buying these staples - the Canadian industries suffered and had to let people go (fired).

Dependancy on a Few Primary

Products•People who are newly fired find it difficult to

purchase products in the economic market.

•Now the industries are suffering even more!

•So the industries have to fire MORE people.

•Now the industries are suffering even more!!

•This chain reaction can only go from bad to worse!

Dependancy on America

•In the 1920s, we (Canada) bought 65% of our imports from America. 40% of our (Canadian) exports went to America.

•When America began its economic depression - Canada felt the pinch.

•America had less money to buy our products - and so without their money, we couldn’t buy THEIR products!!

High Tariffs

•Tariffs are an additional ‘tax’ on goods that are NOT produced in the country in which they are sold.

•The underlying idea being to encourage your countries products over that of another country (that may be cheaper).

High Tariffs•In 1920s, Europe was recovering

from a war fought almost entirely in Europe.

•Buildings were destroyed, fields/crops destroyed, and a scarcity of machinery.

•They were in a buying mood (need) for North American products.

High Tariffs

•While tariffs have the best of intentions, they restrict and discourage trade between nations.

•Even if there is a surplus (over abundance) of products in one country, they are kept out of another that could benefit from it!

Buying with Credit

•It was at this time that ‘credit’ became a more accessible concept to the common citizen.

•Ordinary people could buy something with a small down payment and the rest in instalments over years (with interest).

Buying with Credit•The problems with credit is that if

someone cannot make one of the many payments - the person will lose ownership of the product.

•When a wage earner became ill (or, as in the Depression - is fired) they can no longer make payments. Next thing you know a regular person is out on the street with the clothes on their back (unless they bought their clothes on credit as well)!!

Buying Stocks on Credit

•In the prosperity of the 1920s, it was believed that everyone could get rich quickly with little work and no money down!

•When businesses are profitable (as they often were in the 1920s) most stocks were consistently going up.

Buying Stocks on Credit

•So let’s you were buying stocks on credit - you only had to put down 10%.

•When the stock makes money - you take home a profit (minus the small amount you pay back for interest).

•However - this only works when stocks go up.

Stocks Example•So you buy 100 stocks (each worth a

dollar) for only $10 (the other 90 on credit)

•The next week - each stock is worth 3 dollars. So you now have stocks worth $300.

•You sell.

•You pay back the $90 credit (plus another $10 for the interest).

•You cake home a pure profit of $200...having only $5 to start!!

Buying Stocks on Credit

•If stocks fell, you had to sell quick or risk losing a LOT of money you didn’t have!

•Stocks 101 - When people buy a lot stocks, they go up! When people sell a lot - they go down!

•So when some people rushed to sell their stocks in a company, that company’s stock fell even faster!

Buying Stocks on Credit

•It was a ‘mad-dash’ to sell one’s stock before it fell too low.

•When all these people sold - the stock fell lower.

•Then more people sold.

•Then they fell further!

Buying Stocks on Credit

•So...at the end of the cycle, the everyone who bought stocks on credit was broke (or, even worse, in debt) AND the company who’s stock dropped is now worthless.

•So not only the stockholders suffered, but the company (and all of its employees) suffered as well.

The Great Depression

•After the Stock Market Crash (for all of the aforementioned reasons) Canada became a citizen of poor citizens and failing industries.

•This state of squalor would stay in place for almost a decade.