Most industrialized countries have seen sharp and often unprecedented widening in the spreads between rates in short-term credit markets, such as the 3-month London Interbank Offered Rate (LIBOR) or Canadian Dollar Offered Rate (CDOR), and expected overnight interest rates. (Chart 4 shows how short-term spreads have widened significantly since last August.
Canadian spreads are now significantly below their peaks, but remain elevated relative to historical norms.) 4  The uncertainty we speak of is the so-called Knightian uncertainty, in which probabilities cannot be attached to individual events and, as such, risk (or the variance) cannot be measured.