Home sick last week, I spent some time listening to the radio, where coverage alternated between Obama inauguration previews and the recession. Two days in a row, I tuned in midway to interviews with economists opposed to fiscal stimulus. Both interviewees were upbeat about the prospects of Canada, touting its stronger, more stable fiscal outlook and the ability of monetary policy to turn things around.

Both times, I waited to see who the cheerful contrarian was. Could this happy outlook be credible? Have we underestimated the robustness of the Canadian economy?

Unfortunately, it turned out both speakers were from the Fraser Institute.

So to return to reality: what effect can monetary policy possibly have at this point? The Bank of Canada will likely reduce prime rates to zero tomorrow, but businesses are still facing increased difficulty obtaining credit and consumer rates haven’t moved. If this means that the only way this boon to the banks benefits the economy as a whole is in increased, or more likely, maintained dividends on bank stocks down the road, is there any point in cutting rates at all?