Causes of the Great Depression

Introduction Depression was a world wide economic disaster that lasted for ten years and affected many countries Depression was a complex event with many causes

Too Much Optimism about the Future Canadians in the Twenties believed that the good times would last forever and that their quality of life would continue to improve Farmers and business borrowed money to expand and hire extra workers Banks also felt confident about the future and lent money to increase their profits

Overproduction of Goods By the late 1920s, Canadian industries producing way more goods than people could buy Automotive companies in Oshawa and Winsor produced 400 000 cars in 1930. Canadians already owned over a million cars and in best year only purchased 260 000 Canadians could only afford to buy so much Unsold goods piled up in warehouses Overproduction caused fall in prices Factory owners slowed down production and laid of workers They forgot basic lesson in economics: produce only as much items as you can sell!

Canada’s Dependence on Exports Canadian economy depended on the sale of natural resources as exports to other countries especially the US (1/3 of Gross National Income) Sale of wheat, fish, paper, minerals, coal and wood made Canada prosperous As long as there was a world demand, Canada would prosper Demand for Canada’s products fell What happens when other countries stop buying our natural resources? Sales go down, people lose their jobs

Canada’s Dependence on United States The U.S. Was one of Canada’s largest buyers of timber and minerals 40% of our exports went to U.S. U.S. Corporations buying shares of Canadian industries, linking stock markets of the two U.S. Economy got sick, so did Canada Americans did not need our products, so our economy suffered

Tariffs To protect home industries from foreign competition, high tariffs placed on foreign imports Country X would find its goods kept out of Country Y by high tariffs Country X, in response, places high tariffs on imports from Country Y Trade slows down between countries

Tariffs To protect Canadian businesses during the slowdown the government raised tariffs on imports making them more expensive than goods made in Canada Other countries also raised tariffs and this resulted in less trade and fewer sales After 1928 when demand for resources and goods began to fall, Canadian workers were laid off Attempts to protect the economy by raising tariffs further damaged the already fragile world economy

Buying on Credit “buy now, pay later” Canadians bought too much on credit including stocks Most Canadians spent their wages to buy cars, homes and appliances on credit As long as people had jobs they could afford their monthly payment to creditors Too many people buying stocks “on margin” which meant that they borrowed money from the bank in order to buy more stocks -investors put down only 10% of the cost of the shares and had to pay the remainder plus interest when they sold their shares -investors also had to put up collateral to get the loans to buy their shares -risk involved in this type of investing was lessened by the belief that the value of shares would continue to increase

Stock Market Crash What if stocks didn’t go up? Or, worse still, what if they went down? How would you pay your loans? You would have to sell your stocks or risk financial ruin (many Canadians in debt) This is exactly what happened in October 1929 When value of stocks started to drop, people panicked They decided to sell and get out of the market Prices fell even lower as more and more stocks were dumped In a few hours on 29 October 1929, the value of most stocks on Toronto and Montreal stock exchanges nosedived by more than 50 percent