Seeking Answers Next Door

On the topic of nationalizing banks, it’s interesting to know that President Obama and Paul Volcker have looked towards their neighbors in the North for their resilient banking system. Canada’s banking system has been ranked the soundest in the world and has caught the attention of their friends in the South. Theresa Tedesco, an op-ed contributor to the NY Times writes:

President Obama has joined the adoring throng. He recently said that Canada has “shown itself to be a pretty good manager of the financial system in the economy in ways that we haven’t always been here in the United States.” Paul Volcker, former chief of the United States Federal Reserve, commented that what he’s arguing for “looks more like the Canadian system than the American system.

You can read more about the Canadian banking system here. From personal experience, the banks here are definitely more conservative compared to the States. When I applied for my first Canadian credit card, I was only given a $2,000 credit limit although applying for the card through the bank I work for. I also had to wait at least six months to be able to raise my credit limit. This is compared to the U.S. where five digit credit limits were common.

One of the benefits of a low credit limit is that you can’t spend what you don’t have. The large amounts of credit freely given to people in the U.S. have helped create a culture of high spending without concern for actual dollars in their bank accounts. The bigger, better, more mentality has allowed people to live a life of luxury beyond their means and when faced with a setback, the jenga tower of wealth tips over. Ironically, the U.S. economy will need its citizens to spend their hard earned dough in order to get the economy going again, which most people are reluctant to do in these fearful times. Government incentives will most likely be needed along with hearkening back to times of reasonable spending for all Americans.