FROM CRASH TO DEPRESSION

1926  1927  1928  The markets increased steadily….  Stock prices continued to climb, year after year!  Seeing the Stock Market as a way to make “easy money”, more an more people began to invest in the Stock Market….  Some people even began to borrow money from the bank to invest in the market!  EXAMPLE (NOT ACTUAL FIGURES )  INTEREST ON LOAN 7%.... PROFITS FROM MARKETS 11%....  FREE MONEY!

Hot Markets! DEMAND FOR STOCKS INCREASES PRICES RISE People see profits! More people invest… PRICES RISE AND RISE!

Stock Prices Go Haywire!  Marconi Radio – shares sold for 28 Dollars/Share  The Company was listed as having assets of 130 million dollars!  Marconi Radio was a very popular company to invest in given the popularity of the Radio!  The trouble was, that Marconi Radio actually only had 5 million dollars in assets!  The $28 stock should only have been worth $1!!!  This type of story wasn’t unique… it was a widespread problem of the 1920’s!

Investments in Business  Company Owners and Boards of Directors used the inflated stock prices when making business decisions…  Corporations and businesses grew at a rapid pace….  Bank Loans were taken to expand businesses…..  ….And expanding businesses justify higher stock prices! Take a loan Stock prices rise Growing business

The Role of Banks  Fact: Banks exist to make money….  Banks were willing to give out loans….  … because the loans are being repaid…. WITH INTEREST !  Canadians had easy access to Credit, because the Stock Market had continued rising through the 1920’s!

Black Thursday  Black Tuesday  Thursday, October 24, 1929  US Stocks dropped quickly and unexpectedly….  Many brokers initially borrowed more funds to cover their losses… they believe the setback is temporary!  Tuesday, October 29, 1929  It becomes clear that the previous Thursday was not a small setback…  Big Brokerage Firms begin to sell all of their stock….  Spooked by Big Firms selling, small time players begin to sell as well….  Nobody wanted to hold stock…. Everybody hoped to flee to the safety of CASH!

The Big Selloff  BEFORE BLACK THURSDAY (1920’s)  Limited Supply = High Prices (Scarcity)  AFTER BLACK THURSDAY  Millions of shares became available at once….  High Supply = Low Prices (abundance!)  The price of Stocks went through the floor!  People were left holding valueless stocks!

The Big Selloff  People who had paid $30 Dollars per share on Wednesday, Oct 23 rd 1929…  Were left holding the same shares, which were now selling for less than a dollar!  People were wiped out!

The downward spiral begins…  Banks begin to call in their loans… but the money was gone!  People had bet their loans on rising stock… and had lost the money to declining stock prices!  What’s worse?  Banks had invested client deposits in the Stock Market… and the crash caused many banks to go bankruptcy….  So even people who didn’t purchase or own stocks lost their life savings!

Remember those expanding companies?  Some companies were forced to close because of crashing stock prices  Some companies couldn’t repay the loans they had taken from the banks…  When people stopped spending, sales declined and many businesses were stuck with warehouses of unsold goods…  When these companies closed, people lost their jobs…  Even people who had nothing to do with the Stock Market suffered!

The ripple effects of the Crash….  As more and more people were left unemployed, problems began to snowball…  Unemployed people don’t eat out as much, they don’t shop as much, they don’t go to the movies….  So the Retail Sector suffered…  Which means people lost their jobs….  And so on….

People lose their jobs Restaurants and stores suffer…. So Retail Workers lose their jobs People spend less… Companies lose sales…. Companies go bankrupt

Causes of the Great Depression 1. Over Production & Over Expansion 1. The Roaring Twenties saw companies selling a lot of goods…. 2. Technology meant we were producing more than ever! 3. When sales slowed down, companies were left warehouses of goods! 2. Much of Canada’s prosperity was derived from natural resources for export 1. Resources like: Wheat, wood, pulp and paper, minerals 2. Reliance on exports meant that if foreign countries stopped buying, the Canadian economy would suffer 3. Our economy is/was closely tied to the US 1. When the US catches a cold, Canada sneezes 2. As their economy suffered, so did ours

1. Countries begin to focus on domestic industries 1. High tariffs choke off international trade – (PROTECTIONISM) 2. To offset financial strain, the US begins to call in WW1 debts 1. This left less money for Canadian Goods 2. Too much credit buying 1. Many families made too many purchases with borrowed money! 1. Families had taken on too much debt! 2. People even bought STOCK with borrowed money…. 3. When personal debt loads become unmanageable the economy suffers! Causes of the Depression

1. The poverty line in 1930 was $1430 dollars, the average wage for a Canadian was $ When Consumers can’t afford to spend, there will be economic problems for Canadian companies! Forces beyond Canada’s Control