Now, six months after Lehman collapsed and the world economy has gone into free fall, the Canadian economy is hurting. In January, the Canadian economy lost 129,000 jobs and saw its unemployment rise 0.6% to 7.2%. That same month, the U.S. economy lost more than 500,000 jobs and saw its unemployment rate climb 0.4% to 7.6%. The rate of job loss is rising faster in Canada, and remember that Canada is 10% the size of the U.S. Imagine if the U.S. Department of Labor had announced the American economy had dropped 1.3 million jobs in the month of January, and you understand what is going on north of the border. We know the U.S. unemployment rate is now up to 8.1% through February, but the Canadian government has yet to provide comparative data. You can expect the job losses to continue to pile up over the coming months. If the U.S. finally tops out at 10%-11% unemployment next year, as many economists call for, it is not unreasonable to expect Canada to go back to its 4% spread of 14%-15% unemployment. It is this scenario that worries Canadian bank investors and the banks' potential future losses on credit cards, auto loans and mortgages (both consumer and commercial). There are silver linings for the Canadian economy and its banks. The Canadian dollar has already dropped to being worth US 80 cents and it could go lower, which helps Canadian manufacturers compete against U.S. companies for jobs. Canadian consumer indebtedness is healthier than in the U.S., which hopefully contributes to continued spending in the domestic economy. The Canadian government has also done little to stimulate the economy and is in a strong fiscal position to do so, if needed. The Canadian banks are in a strong capital position to weather the coming storm and will certainly use that strength to expand into the U.S. opportunistically at some point in the next three years. But investors might choose to wait on buying these "soundest banks in the world" until they better understand how long and how deep the recession will last in Canada.