Montreal, Canada

Over the last 18 months or so, I’ve received many inquiries from U.S. investors looking to open an account in Canada. Barely a week goes by where I don’t get an email or phone call on the subject.

Evidently, our American neighbors have gone Loonie for our banking system, the relative safety of our capital markets and the Loonie – better known as the Canadian dollar. And who can blame them?

The U.S. banking system must have appeared like a leveraged casino back in 2008 and early 2009 when the financial system was at the brink. Turn the clock 24 months ahead, and the biggest three American banks still control a disproportionate amount of assets.

According to hedge fund veteran, Paul Singer, who predicted the financial crash back in 2007, “Even after the crisis, credit ratings obviously provide no real clue. Rumor and feeling is all you have. You don’t know the financial condition of Citigroup, JP Morgan, Bank of America, any of them,” he recently lamented in a Wall Street Journal editorial.

While I agree with why Americans are running to open bank accounts in Canada, I don’t agree about the destination and its apparent merits.

Canada is definitely a safer harbor for U.S. individuals seeking a home for their hard-earned money. Our banks are regulated. Mortgage applicants are actually reviewed by someone and potential homeowners must place a deposit. But Canada is no panacea.

Americans really don’t read about our deficits. Yes, they pale next to Monster America and the trillions amassed since the advent of the financial crisis. But we do have provinces in this country and some have huge deficits.

The Canadian federal government is projected to have approximately a $50 billion dollar deficit in fiscal 2011. The Bernanke Fed prints that sum in about two minutes to monetize Treasury debt. It’s really peanuts in the grand scale of things.

Still, Canada’s borrowing requirements this fiscal year will hit an all-time high.

Most provinces are in much worse shape.

Quebec, for example, the second-biggest province and a major manufacturing belt after Ontario, is in the hole for about $235 billion dollars, and counting. Other provinces are also in deep water. Ontario’s net public debt was C$1.6 billion dollars back in 1965 and has risen to reach an estimated C$245 billion dollars in 2010. While Ontario has been a province in the Canadian federation for 143 years, over 80 percent of its debt has been acquired over the past 20 years.

The gap between resource-rich BC, Alberta, Saskatchewan and Manitoba is growing increasingly wider by the day as Ontario, Quebec and the Maritimes struggle.

But even out West, everyone, except Saskatchewan, sits on deficits. Out East, only Newfoundland & Labrador has a surplus. And the surpluses aren’t that impressive; Saskatchewan’s fiscal surplus this year is $115 million dollars; Newfoundland and Labrador managed a $12.3 million dollar surplus.

So if my idea of a sound banking system is to place assets in a country that has amassed huge debt burdens combined with a significant economic relationship with the United States (about 70% of cross-border trade), then maybe I should think again. Plus, most of Canada’s banks have major investment interests in the United States, especially in commercial real estate.

I realize I might not sound like a patriotic Canadian; actually, I am. Canada is a great country. I’m just trying to drive home some realities to American would-be depositors; Canada is not debt-free. It’s not a safe-haven, not a privacy haven and certainly not a place for those investors seeking asset protection benefits.

Instead, consider countries like Austria.

Unlike Switzerland, Austria is not forking over bank account names and not on anyone’s hit-list. It’s a stable EU country with strong privacy laws and offers asset protection. Canada doesn’t offer any of these things.

Austria, however, is not debt-free, either. The country does sport deficits. Yet almost every nation in the world harbors a budget deficit-to-GDP ratio that would alarm most investors. Only Norway, Kuwait and Saudi Arabia have positive budget surpluses.

Still, Austria is overlooked by many investors. I urge you to visit Vienna and explore its private banking benefits.