I’m in Toronto, where I just received an honorary degree from the University of Toronto; and my thoughts have naturally turned, as they don’t do often enough, to matters Canadian. For it seems to me that Canada offers a useful test case for theories about what lies behind the Great Recession and the Not-So-Great Recovery.

In its early stages, the slump was widely seen as essentially a banking crisis. This view in turn led some people — unfortunately, I believe, including some senior people in the Obama administration — to believe that the economy would bounce back quickly once banking was stabilized. In fact, however, banking was stabilized pretty quickly, and most measures of financial disruption look like this:

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That is, a period of severe disruption in 2008-9, but a return to relatively normal conditions thereafter. Yet the economy remained depressed. As a result, many economists — myself included — turned to a view that stressed nonbanking issues, especially the broader effects of the collapsed housing and the overhang of private debt.

Enter Canada. Famously, Canada’s old-fashioned, boring banking system avoided getting caught up in the global financial crisis. And for a while Canadian housing prices lagged those south of the border. Since then, however:

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And Canadian household debt has kept rising even as the US level has declined:

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So if the new, non-bank-centered view is right, Canada ought to be quite vulnerable to a big deleveraging shock despite its boring banks. Of course, people have been saying this for several years, and it hasn’t happened yet — but remember, the US housing bubble took a long time to pop, too.

I’m not exactly making a prediction here; but I guess I believe in the debt overhang story enough to be worried, and Canada is certainly an important test case.