Much of the Canadian economy has been fuelled by an expansion in credit -- especially housing credit -- in the past 20 years. With rates now at high levels, the bill is due and the economy is broadly deleveraging.

National Bank yesterday highlighted data from Statistics Canada that show a significant slowdown in household credit growth, marking a 3% increase in the year to September - the slowest in over three decades. When adjusted for inflation, consumer credit actually fell by 1%.

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National Bank highlights a grim outlook, noting that the tough recession in Canada in the 1990s was the last time it was this bad and that was due to 14% rates and unemployment at 12%.

There is simply no precedent for a contraction in household credit of the current magnitude, while the unemployment rate remains below 6%. Let's hope that the next employment report on Friday doesn't show too much of a deterioration in hiring, otherwise the credit cycle will continue to deteriorate.

As for bank earnings, the Bank of Nova Scotia reported poor earnings today and shares are down 4.2%.