In Iceland the future may have played out in miniature. That little country of 300,000 people has seen banks go bust, real estate values plunge, the currency trashed and the middle class crashed. I’m told by someone who should know that food stocks are running low because grocery stores have no cash for inventory. And as you may already be aware, the country’s three main banks were taken over by the government earlier this month, and that last Tuesday the stock market lost three-quarters of its value.

Why does this place matter?

Only because in a mini-country like Iceland, which is an affluent, modern society, might we see in weeks what we could reasonably expect in months.

You have to admit, there’s little to cheer about as we look out over the coming times. The Canadian dollar, once soaring far above the Yankee greenback, has collapsed to 82 cents. Oil has lost half its value, and if the slide continues the Albertan oil sands become uneconomical.

The Toronto stock market crashed another 400 points yesterday. The Chrysler plant in Windsor is now going half-speed. The Bank of Canada dropped interest rates again – the second cut in as many weeks – but not by enough. The Sterling truck plant in St. Thomas is kaput for sure now. And several mining operations in Northern Ontario are winding down, laying off people in communities where few other jobs exist.

In the States, the government’s not only buying up Wall Street and half the country’s mortgages, but is now gobbling money market funds. Banks are borrowing more than $400 billion a day from the Federal Reserve, and blue-chip companies like Caterpillar are having trouble borrowing enough money to survive. Yahoo is laying off a big chunk of its workforce, and it’s expected many retailers will close their doors before Christmas, since they can’t borrow the money to buy holiday inventory.

Because the US economy may be in the process of collapsing, commodity prices have slumped world-wide. As toxic US mortgage debt poisoned the global financial system, credit froze, banks teetered and suddenly money is hard to find, which has ironically made American greenbacks more valuable, further depressing commodities and the Canadian dollar.

Meanwhile, disastrous earnings reports of major American corporations are pulling down the stock market recovery that billions of government dollars were supposed to create. Some say the Dow may lose another 35-50% of its value.

Do I see a Black Swan?

And, yes, there is real estate. So far, the average house price has dropped by $30,000 in Toronto, $45,000 in Vancouver, $17,000 in Ottawa, $61,000 in Calgary and $64,000 in Edmonton. At the same time, 0/40 mortgages are gone, mortgages are harder to get and rates are higher for those who do qualify. There are more houses for sale than ever, and sellers are having to wait vastly longer times to find a buyer. If they can. And this has just started.

As I have said for a very long time now, the greatest threat to the wealth of middle class people everywhere, but especially in Canada, is a real estate melt. And now it’s happening. When I published my book warning of this, back in April, organizations like the Canadian Real Estate Association said an absolute price decline was not in the cards. Sadly for those recent buyers who heeded that advice, they are now under water.

All of the above brings us to a single conclusion: This is an economy in decline, and the bottom has yet to be glimpsed. We’re paying for a society which became dangerously addicted to debt and in which too many people wanted stuff they simply could not afford, yet bought anyway. Shame on them. More shame on those who gave them the money. And let’s heave special shame on experts, critics, analysts, economists, industry leaders and politicians who said there was nothing to worry about.

Fourteen days ago the Canadian prime minister was one of them.

But I can’t go there. Apparently I’m dead.

Across a plate of salmon, in a north Toronto restaurant which had been cleared of patrons, I stared for the first time at this professor from Montreal. With me was the go-between MP, one of the men Stephane Dion has just defeated in the Liberal leadership contest, and a long-time party operative.

After sitting as a Harper outcast and Indie member of Parliament for four months, I’d been approached to meet this new political breeze, this earnest man the country and I knew far too little about. In those first days after Montreal, he represented the antithesis of politics, the outsider fuelled by principle and intellect as opposed to the other contenders backed by sagging party warhorses and far too much money.

Over dinner I told Dion I had been a Progressive Conservative my entire life, a believer in less government, lower taxes, but yet compassion and fair treatment for all. I’d fought Reformers, and had seen in Stephen Harper a narrowness no prime minister should harbour.

“If there is room on your team for a PC refugee,” I said, “I’m willing to give it a try.”

Dion jumped up, grabbed his glass of white wine and thrust it over the table. “And I am so pleased to have you,” he said.

That wasn’t always the case, of course. My commitment of digital democracy, open government and frank talk got us both into trouble a few times. Dion shocked one day by disowning me in front of caucus after I’d given a rousing visual presentation on current events, heavy on Max and biker Julie. He punted me again in Calgary last summer after a blog posting here managed to inflame a majority of people (it seemed) in both Alberta and Quebec.

But I think those were things one would expect from a leader dealing with a guy like me. However, he was warned. I told him when I joined the federal Liberal caucus that my allegiances would always be with voters and citizens first, parties and leaders second.

In my coming book, I summarize it this way:

While parties are central to how we run countries, it is less so each day. The Internet has the power to turn unknowns into leaders and involve citizens whom partisan recruiters, organizers and militants will never meet. A blog can alter political outcomes, while web sites reach millions when media outlets are still editing. Politicians who open digital conversations make the future impossible for those who do not. One or two more federal elections, and the traditionalists will be gone.

Experience has convinced me this is what many Canadians want. Parties and leaders who demand unquestioning acceptance of dogmatic positions are doomed. No one, not even a prime minister, can put this back in the bottle.

To his credit, Dion never did try to stuff me back into a manageable form. He is obviously an intelligent and ethical person. All of Canada knows that. But he’s also a sensitive, compassionate and thoughtful colleague. He called me when my dog, Cheka, died. His wife called me to thank me for blog entries. Dion called me in defeat, whereas Harper never called me in victory.

We all know the failings of the campaign just past. I’d asked my leader not to run on the Green Shift, but rather to issue it as a pre-election discussion paper less open to categoric attack and misinterpretation by the Harper forces. The party lapsed on a communications effort, and was totally outspent, outgunned and outfoxed by a Conservative team that was planning for war while Dion was minivanning from church basement to high school auditorium all summer.

Nonetheless, Stephane Dion is a great Canadian and has left a legacy of accomplishment behind him, from the separatist-bashing Clarity Act to doing more for climate change awareness than a dozen Green Parties ever could. He may have been disinterested in the things which brought him down – fundraising, organization, tactics – but he was a leader who mattered, who rose unexpectedly by dint of his own determination, and proved bullies can be faced with calm dignity, and hope.

Adieu, boss. Merci.

Apparently I am too much. Too much for a successful career in Canadian politics, anyway. As you may have heard, last night I lost my seat in Parliament in the first elections in the world to be held in the immediate wake of the financial and economic mess enveloping us.

Being Canada’s only blogging MP (my political site played a key role in having my butt kicked out of the Conservative party) was bad enough. But being with a political party which seemed to offer people no better safe harbour in this storm was likely the kiss of death. I’d urged my leader to adopt an immediate policy of guaranteeing all private bank savings, but that commitment was blown.

In any case, my own damn fault. If you want to know more, you can buy my book (the new one). More on that in future days.

This morning I am off to Nashville to give a speech to a few thousand realtors at an industry convention. My topic: What comes next. My thesis is that what’s happening right now bears an uncanny resemblance to what transpired in the months following Nine Eleven. I mean, look – traumatizing major event making people feel helpless. Inappropriate, incompetent government response. Major mistakes in monetary and fiscal policy. Volatile markets scaring the crap out of investors. Sudden perceived value in real estate. And the consuming preoccupation with where money’s safe.

So, are we sowing the seeds of the next housing boom, even as we sink faster into the current rubble?

I think that might be a plausible argument for the American market, while here in Canada we are destined to go through the next phase of decline.

In any case, more later.

In the meantime, send canned goods.