Interest rates and an expression of the risk premium:

I know very very dry right. Well there's a point that I wish to make to all the tired - 'we have no alternative but NAFTA' continentalists. I was in the bank the other day and to quell my general boredom I had a look at the electronic display that shows the major interest rates, including CAnadian and US Prime Rates. Historically you could have simply put US + 1/4% when expressing the Canadian rate. There have been a couple of abberations, including when that monetarist John Crow got his hands on the bank rate, but even including that, Canadian interest rates have been higher than the American rates by a nominal, but significant amount. Recently I noted that the Canadian Prime rate was 5% while the American rate was 7%.

A 2 point spread on lending rates that should be untennable in an economy where american companies looking to finance, and having large and well capitalised Canadian subsidiaries should simply be able to flood the Canadian market with demand for finance until prices reach near parity, assuming that the American economy was equally as strong. However if Canadian banks no longer viewed the American economy as being equally secure or more secure as the Canadian economy. If Canadian bankers finally noticed that the little nation of 32 Million had a better grasp of the economic fundamentals, and for that matter less than the perceived dependence on the US in terms of vertical (apples for oranges) trade, than its large neighbour to the south, despite its supposedly onerous marginal tax rates and supposedly perpetually dishonest politicians.

The market has spoken. The Chicago School is failing.