Oh, Canada!

A Canadian reader writes: 

Drum and Zakaria are busy applauding us Canadians for our financial foresight. While it is true that the relative lack of leverage in the financial system was a good thing, it is also true that the Canadian economy tends to follow the course of the US economy with a 2-3 quarter lag. In short, does this (Canada's trade balance, released Tuesday, attached) look like the chart of a healthy economy? We are a leveraged play on the US and Asian economies.

Canada is now being held up as a regulatory example to us, but Canada has always been an odd duck--it was also the only major economy in the Great Depression not to have a banking crisis.  You can tell a lot of stories about why this is so, but most of them--like nationwide banking, big downpayments on mortgages, and banks keeping substantial portions of the loans they originated, are found elsewhere.  Moreover, it doesn't explain why they didn't have a banking crisis the first time around, when both their banking system and ours looked very different.  Another Canadian of my acquaintance credits some deep resistence in the Canadian soul to get-rich-quick schemes, or even get-rich-slow schemes, but I couldn't comment.

It is quite true, however, that if the American economy really tanks, it won't matter much how great the Canadian banking system is; they'll have a nasty depression just the same.  Their GDP is by now so dependent on exports, particularly to the US, that a downturn in the US means massive job losses in our neighbor to the north.

What they do indisputably have is a government in a much better position to deal with a crisis, because they've been running surpluses and paying down debt for over a decade.  If only we'd had similar prudence.