Canada's economy has been the best performing of the G8 nations coming through 2008 with flying colors. It has been heralded by many in the U.S. business media as being an example for the U.S. to follow. It's common now to hear pundits suggest Americans to seek the safe haven of the Canadian dollar from the risk of the US dollar's debasement. Recently, no less an authority than Bill Gross suggested savvy investors buy Canadian debt as a hedge to what's on offer here in this country. Canada deserves pats on the back for its ability (and good fortune) to steer itself through the last few years. However, there are some ominous warning signs on the horizon for its economy and it's not entirely clear where it -- or its currency -- is headed next. First, let's review what Canada's done right. 1. In housing, Canada kept strict oversight of income verification and documentation. You just never could walk in to the equivalent of a Countrywide in Canada and get approved for an obscene amount of money. 2. All mortgage loans in Canada are "full recourse," meaning that the borrower is fully responsible for the mortgage even if he or she defaults. Banks can keep coming after the individuals who took out the loans, long after the property has gone into foreclosure. 3. No tax deductibility of mortgage interest. Although some Canadians complained about this in 2005 when house prices were booming in the U.S. but flat in Canada, this conservatism looks very wise today. What's the point of goosing as asset-class with a tax break, when it contributes to the devastation we've had in America in housing for the last three years? 4. More conservative lending and fewer mortgage brokers. Canadians often like to say they don't/didn't have subprime mortgages in Canada. That's not correct. Subprime mortgages exist, but are far less common than in the U.S. Part of the reason is that the five Canadian banks are the major way most Canadians originate their mortgages. Only 35% of Canadian mortgages are originated by mortgage brokers, whereas the equivalent number in the U.S. is 70%. Therefore, there were far fewer subprime mortgages made available in Canada over the last decade - another conservative point for the housing economy.