Interest Rate Comparisons
The price of credit is increasing. From the WSJ today,
"The January survey shows that more domestic institutions have tightened lending on commercial and industrial loans, on commercial real estate loans, and on prime and subprime residential mortgages in the past three months. And while Treasury yields have dropped sharply in the wake of the Federal Reserve’s actions, corresponding interest rates — such as those for prime mortgages or jumbo mortgages — have not. The federal-funds rate has declined by 2.25 percentage points in the past year, but the average 30-year mortgage rate is at 5.58%, compared with 5.96% a year ago, a 0.38-percentage point decline. Jumbo loans are higher, at 6.71%, from 6.19% a year ago."
The banks are repricing risk back into lending. Personally, I don't think they have priced enough risk back into lending because they are still matching short term deposits with long term debt. It means that say 3 years from now interest rates are 7%. They are losing money. The only way the banking system stays solvent in that case then is if interest rates are artificially discounted, which I think the federal discount window is already doing.
The Canadian system is simply better. It matches loans with term deposits, hence we have mortgage renewals and the rates we pay change. It enables banks and consumers to adjust to current rates, which can be "good" or "bad" depending on which way the rates go. It also encouages people to take the debt more seriously because rates can go up.
The lack of matching deposits with debt essentially forces the government to keep rates artificially low because as soon as rates are raised banks find themselves in trouble again.
You might argue that it is good that consumers can get long term low interest rates, but it creates gross financial instability.