The Stock Market Crash of 1929
The end of the economic boom of the 1920’s came as a surprise to Canadians: Only 4% unemployment in Canada Activity on the US and Canadian stock markets was feverish Most companies profits were going up
Problem: Companies issued “shares” or “stocks” to investors in their companies The value of the stocks fluctuated on the stock market as they were traded As company profits went up, so did the value of the stocks But…many people bought “on margin” – they did not have enough $ so they only put 10% down…figuring profits would cover the other 90%...
People assumed that the value of stocks would continue to rise…because they had for 10 years! Loans to buy stocks were easy to get People rushed to get rich quick! But… cautious investors started selling their stocks in order to cash in… And… other investors followed them… Finally… sellers panicked as the value of stocks fell dramatically…
On Tuesday, October 29, 1929: The NY Stock Market collapsed, followed by Montreal and Toronto and overseas Investors went bankrupt in a single day… The collapse was the beginning of the Great Depression – a period of severe economic hardship…. But while the stock market crash contributed to the Depression, it did not cause it…
Causes of the Depression: Price of wheat fell in 1927: More wheat was produced than sold Too many countries other than the US and Canada were now producing wheat As sales decreased, farmers incomes decreased… they could not meet their loan and mortgage payments
2) Many industries in North America were overproducing goods: At first, manufacturers stockpiled goods Then layoffs in factories = decreased incomes for workers…
3) US had imposed high tariffs on foreign goods to protect the US market: This “protectionism” had harmful effects Other countries imposed their own tariffs World trade slowed down
4) Germany could not meet its financial and reparations obligations imposed by the Treaty of Versailles: Its economy was in ruins and it could not rebuild and repay France and GB counted on German reparations $ in order to repay their war debts to the US
Canada and the Depression Depression showed weaknesses in the Cdn economy: – too much dependence on primary resources (e.g: lumber) which were vulnerable on the world market - Hurt by close economic ties to US – when the US economy crashed, so did Canada’s