The Globe and Mail reports in its Tuesday edition that Canada is close to recession -- if one has not begun already. Guest columnists David Rosenberg and Dylan Smith write that powerful effects of higher interest rates are moving through Canada's overextended real estate sector and highly leveraged financial system. Combined with an increasingly fragile domestic consumer, the Canadian economy is cooling. The question now becomes how deep and damaging the recession will be. The Bank of Canada risks keeping rates too high for too long in pursuit of its inflation mandate, potentially turning a recession into a crisis. The writers believe the bank will need to ease financial conditions before the U.S. Federal Reserve. Canadian government bonds are attractive on a comparative and absolute basis, while the loonie appears set to lose ground. Real estate prices have begun to fall as supply finally comes onto the market, spurred by deteriorating mortgage affordability. The poor performance of the Toronto Stock Exchange this year may be trying to tell us something. Toronto has underperformed its typical correlation with U.S. stock returns; the S&P 500 is up nearly 12 per cent on the year, with the TSX virtually flat.