Should Stephen Poloz be more worried about the Canadian economy?

I hope Bank of Canada governorStephenPolozwas putting on a brave face.

Despite a warning that risks had increased, mostly due to the property market,the avuncular Polozwas blandly reassuring when he met with the media yesterday to discuss the bank's latest Financial System Review.

His senior deputy Carolyn Wilkinswas even more hypnotically nerveless.

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Not that we wanted our two most senior central bankers to be wailingand rending their garments in despair.Of course it is nice to feel that Canada's financial systemis in coolhands.

But is the governor lulling us to sleep when we need to be very wide awake?

Why worry?

We must just hope thatbehind the scenes, in the Bank of Canada war room, the soothingPolozand ice-coolWilkinsexpose themselves to a fewmoreterrifyingscenarios. Because a survey of credible sources says the world, and the Canadianeconomy, remainfraught.

While it may be nice for a firefighter to reassure you that modern housesseldom burn down, the fire chiefyou want racing to your flaming home is one whofears the worst and knows what to do when it happens. Chief central bankers should think like firefighters.

Even while upping the housing risk, Polozplayed it down.

"Overvaluation remains a concern," he said in his prepared remarks. "But the probability that a sharp correction in house prices will occur remains low."

Even if that should happen, said Poloz and Wilkins, the systemic risk that is, the risk for the wider Canadian economy is reduced by the fact that the bad effects ofovervaluation will only hit some households in some regions. Vancouver and Toronto,are "showing some strengths," said Wilkins, but outside those two centresprices are "easing quite nicely."

"It is important there because if it is a generalized thing, which we are not seeing, then that's a different problem than if it is localized," said Wilkins.

Soaring absurdly

Everyone in the world has noticed that Vancouver and Toronto house prices are soaring absurdly. Even with a flood of cash escaping from China, an impact denied by the B.C. real estate industry,it is hard to imagine those prices can be sustained.

Just as the San Francisco earthquake of 1906 damaged the entire U.S. economic system, a property crash in one of Canada's two hot real estate cities, no matter how unlikely, would be felt coast to coast.

But the bankers' reassurances did not stop at real estate. On the financial system, reforms had made things more secure.Reforms had also made Europe more safe. On oil, things were moderating. On the global economy, the U.S. was pulling ahead.

Bankers aren't ready

On those same points, other analysts are far less sanguine. The cover story of this week's Economist,Watch out: the world is not ready for the next recession,warns that another global recessionis on the way, and central bankers aren't ready.

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Mark Carney, Poloz's predecessor, now at the Bank of England, has warned that the fossilfuel industrymay be in aslide as the world wakes up to the dangers of global warming.

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And while a recovery in the United States would indeed be nice to see, steadily rising interest rates would be devastating for over-borrowed Canadians and for the bond market.

Fearless warnings

In the past, Poloz has taken flack for calling the Canadian economy "atrocious" when it indeed turned out to be atrocious. He was pummelled for calling house prices seriously overvalued when they were less overvalued than they are today. But a fearless central bankershould do more of that.

In a world where everyonewants to be reassuring,from real estatesalesmen to financial advisersto politicians wanting your vote, we need a few trustworthy voices willing to remind us of the risks.

In nervous times, there is nothing wrong with hoping for the best. But we must also prepare for the worst.

We need Polozto be the fire chief telling us to put up smoke alarms and keep the candles away from the curtains. And we must know that he knowswhat to do when, against all odds, the house starts to burn.

The most frightening thing about yesterday's news conferencewas that it wasn't frightening at all.

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More analysisby Don Pittis