Thursday, November 13, 2008

[Latest Endogenous Liquidity Index: -62.1%; Latest Global Dollar Liquidity measure: +37.7%]

Today's Financial Times features an article by James Flaherty, Canada's finance minister, about the beauty of being ... boring. "Canadians by nature are prudent", says Mr. Flaherty. And he adds: "Our financial system has been characterized as unexciting. Canada's regulatory regime ensures that stability and efficiency are balanced". Very interesting indeed! I decided to put Canada's famed prudence to the test. More to the point, I checked the data from Bank of Canada to get a sense of the shape of the yield curve, the ultimate wicksellian criterium of a prudent monetary policy. All in all, Mr. Flaherty's views seem to be backed by the evidence. The yield on the 10-year benchmark bond now trades at a prudent 1.65 times the target for the overnight rate (vs. a record and far-from-prudent 3.66 times in the U.S.)


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