It may have the ring of an old-time preacher warning parishioners in his congregation about temptations that lead them a fiery destination, but the Bank of Canada was at it again recently about the high level of Canadian consumer debt.

In its December review of the financial system, the Bank of Canada looked abroad and at home to gauge the potential for unpleasant shocks to the financial system. Outside of Canada, the bank spotted global sovereign debt as a potential problem in the months and years ahead.

"A key concern is that the acute fiscal strains in peripheral Europe and weaknesses in the European financial system could reinforce each other and have adverse effects on other countries, including Canada, through several interconnected channels," wrote the bank's economists.

In layman's terms, what the bank is concerned about is the risk of default in some high-risk countries (think Ireland, Spain, Portugal and Greece for starters); that would force losses, perhaps massive ones, on bondholders and banks that hold such sovereign debt.

Should such defaults occur, even partly, some banks with too much sovereign debt on their books may need to turn elsewhere to stay afloat. But at that junction, other financial institutions may be reluctant to lend money, even on a short-term basis, given the risk they might be throwing good money after bad.

Should such banks be located in countries where the governments are themselves already deeply in debt, then some other country or institutions such Germany or the European Union or the International Monetary Fund may have to step in to provide assistance and liquidity. But that can only happen so many times before either taxpayers in those countries -- Germany in the case of Europe, or taxpayers in other countries themselves running deficits -- think of the United States, refuse to ante up more money. In that scenario, contagion becomes a problem as some institutions and then countries may fail.

Such scenarios keep central bankers up at night and also have the potential, if they arise, to freeze up the world economy, much as happened in 2008 when credit dried up after the Lehman Bros. collapse, except that next time it might be a country's finances that collapse and send shock waves.

Which might be why the Bank of Canada sent out this other unsubtle hint to Canadians in the same report: stop taking on so much debt. Canadians are taking on debt faster than their income is growing noted the bank and that's a potential problem: "The proportion of households with stretched financial positions that leave them vulnerable to an adverse shock has grown significantly."

That is polite banker talk for this warning: should international financial stresses indeed come to pass and banks start to pull back lending to preserve capital, a mutually reinforcing and negative downward circle will begin, where economies deteriorate and lenders are cautious; that will slow economies even further.

In the everyday world, that can mean layoffs and households unable to pay their bills. Of course there is good and bad debt and mortgages -- especially ones for your principal residence and not speculative properties -- is not as troubling as other kinds of debt.

Nevertheless, as Canadians consider their finances looking ahead to 2011, it's a good time to heed the central bank's warning and ask yourself this Clint Eastwood question: Do you feel lucky? If not, be careful how much debt you take on.