OTTAWA - Bank of Canada governor Mark Carney warned Wednesday that a U.S. debt default would have a huge ripple effect on global financial markets, but also assured that the situation is unlikely.
"I don't think anybody can tell you with certainty what would happen," said Carney, who presented the bank's monetary policy report Wednesday. "But it's certainly our view that it's not something that should be tested and it's not our expectation that it will happen."
Time is ticking for U.S. politicians, who have less than two weeks to devise a plan to raise the country's debt ceiling from the current maximum of $14.3 trillion. The U.S. treasury expects the country to run out of resources by Aug. 2.
"Our expectation is that U.S. authorities will come to an arrangement that honours their obligations to debt-holders," Carney said.
Experts have painted a grim picture of the global economy if Washington lawmakers are unable to resolve the debt crisis.
The U.S would face a downgraded credit rating and see a hike in interest rates, as well as significant cuts to social security, Medicare, and military pay, if the county was not able find a way to pay its bills.
Univesity of Calgary economist Jack Mintz says even if the U.S. doesn't default its debt, the country will soon undergo a period of major financial restructuring. He says crucial public policy reforms are necessary.
"Some of them will be painful, especially on the spending side," said Mintz. "It would hurt us to a degree. The U.S. is still our major trading partner."
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