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After the stock market collapse of October 29, 1929, many expected the economy to continue on as strong as before and that the markets would bounce back to their highs of previous summer.  Terms such as "the economy remains fundamentally sound", "undiminished confidence in Canada's continued growth", "constructive optimism", were used by the financial community, politicians and other establishment figures to reassure the people that the markets demise was a temporary event. These events and predictions did not transpire and a whole series of related events began to take place which magnified the decent into economic depression.

With the evaporation of many peoples disposable income and in in many cases their entire savings, many began to cut back on expenditures. This compounded the slow down in consumer and business buying which necessitated a slowing down of production and the laying off of workers. As workers were laid off and restricted their purchases, a deflationary spiral was started. Government revenues began to fall as tax revenues decreased from lower sales and less economic activity.

At this point government stimulus spending might have spurred a stop in the slow down and maybe started an increase in the activity of the economy, but the Liberals in Canada as the Republicans in the U.S. refused to go into any further debt and focused in on balancing the budget by reducing government spending. The result of these actions pulled more money out of the economy and further retarded the economy cycle.

Many banks and financial institutions had helped feed the stock market frenzy which created the bubble which had just burst. They had lost millions on loan defaults, housing repossession, bankrupt debtors and their own investment in the markets. They began to restrict their lending and consolidate their lending requirements which began to pull more money from the economy and further slowed down business.

The bright optimistic attitude of the 1920's was replaced by a pessimistic, sceptical view of capitalism, the western systems and the future in general. This crisis of confidence in the system resulted in less spending by the consumer, putting off a purchase when an older worn procession would do and another restriction on the flow of cash.

Governments worldwide began to increase their protective tariffs which slowed down international trade and increase some prices to consumers which discouraged them from buying unless absolutely necessary.

The cogs and machinery of business and commerce were grinding to a halt and little action by federal governments was enacted to get things going again.

On January, 1930, many of the mayors of major Canadian cities assembled in Winnipeg to call on the Federal Government to provide funds to the municipal governments for relief and launch a massive public works program to get people back to work.  The feds did not respond and by 1932 the country had sunk into complete despair and many had simply given up. In the U.S. the entire banking system was in danger of dissolving as bank runs became commonplace and many closed their doors forever.

Canada entered the depression and sunk to it's lowest depths in 1932, which by was deeper then anyone could have imagined. The long struggle of the depression had set in.

 


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Reference: www.canadahistory.com/sections/eras/eras.html