“This has never happened before, so the really scary element is that we have no idea how bad it could be,” James Marple, a senior economist at TD Bank, said in an interview on Thursday.
“We just know that the entire global financial system is based on the safety of U.S. treasuries. It would throw into chaos the entire system upon which financial assets are priced ... it's fair to say that the projections that this would be a Lehman Brothers-type fiasco, or worse, are accurate.”
Lehman Brothers Holdings, a global financial services firm based in the U.S., declared bankruptcy in 2008 in a filing that played a major role in the subsequent worldwide economic meltdown.
Sal Guatieri, senior economist at Bank of Montreal, agreed with Mr. Marple's dire assessment.
“The bottom line is there would be a lot of uncertainty thrown into global financial markets if the U.S. defaulted on its debt, and we really don't want to go down that road and actually experience it,” he said.
Canadians would most certainly see long-term interest rates rise in the event that no deal is reached before Aug. 2, both economists said. That would drive up corporate borrowing costs, something that would negatively impact the Canadian economy.
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