For years, U.S. lenders were giving away loans to literally anyone who asked. Banks worldwide were flush with cash and needed new financial instruments to haul in even more cash. So, they bought mortgage pool after mortgage pool, good and bad, packaged them nicely and sold them to investors. Of course, when mortgages came up for renewal, all hell broke lose. The credit supply tightened, dividends were slashed, stock markets went into a tailspin, and fears of recession were on everyone's lips.

We felt the latest bear effect last week, when fears of the U.S. economy coming unglued translated into huge market losses. Sell- offs spread from Asia to the U.S. to Canada, causing the TSX main composite to completely erase all of last year's gains, dropping 895 points from the highs reported last July and coming very close to the psychological mark of 20% that generally defines the bear market.

The biggest losers were banks, but miners and energy companies were a close second and third. Just BCE Inc. lost five percent off of its already decimated market cap, as rumors spread that the credit crunch might kill the company's much debated going-private transaction.

Aron Gampel, an economist from Scotiabank, was quoted in yesterday’s "Toronto Star" saying, "It used to be that when the U.S. sneezed, Canada caught a cold. But now the contagion is spreading internationally and through financial sectors."

But PROFIT CONFIDENTIAL readers already know all that. The credit crisis has been discussed ad nauseum. The question on everyone minds is what will it take for all this to end and when will that happen? Browsing through the financial press, I've read opinions in a surprisingly wide spectrum, ranging from forecasts of worldwide severe corrections, to deep cutting recessions, to 1920s- like depressions.

In my opinion, the U.S. is heading for a deep recession that is likely to last a while. And Canada is likely to suffer considerably as well in the process. Perhaps not to the extent it did when similar economic conditions prevailed in the past, but suffer it will nonetheless.

However, there is a silver lining here. Year 2008 is an election year south of the border and the economy is going to play a significant role in the U.S. presidential campaigns. This usually means that monetary and fiscal decisions are going to be made to fit a political agenda.

And while we're talking mostly about dramatic "cosmetic surgeries," the example of which is yesterday's 75-basis-point key lending rate cut by the U.S. Federal Reserve, it will buy us valuable time. The time we need to wean ourselves off the close economic correlation with the U.S., the time we need to establish stronger trade relationships in Europe, and the time we need to start focusing on creating our own Canadian dream, as the American one seems to be vaporizing.