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The prospect of Washington defaulting on its loans is "very bad" and the Canadian government will work to prevent a similar crisis, Prime Minister Stephen Harper said on Wednesday.

As U.S. lawmakers struggle to solve a $14 trillion debt problem, Harper called the situation "extremely difficult" and said it isn't surprising they haven't found a solution yet.

North of the border, Harper said that Ottawa will do what needs to be done in the coming years to balance the budget and stop a similar dilemma from happening.

With under a week to go until a potential debt crisis, United States lawmakers have yet to reach an agreement on rival plans to raise the government's borrowing limit.

If Washington defaults on its loans the consequences will ripple over to Canada, Finance Minister Jim Flaherty warned at a business roundtable on Tuesday.

Speaking to reporters at the conference in Burlington, Ont., Flaherty confessed that the impasse made him "very concerned" adding that a default situation could lead to higher interest rates even as credit became less available for Canada and other countries.

But the finance minister also said he believed that U.S. lawmakers reach a compromise on their debt dilemma before the Aug. 2 deadline.

"I'm relatively confident that the United States will arrive at a debt ceiling solution in the next few days," Flaherty told reporters.

The prospect of the world's largest economy failing to pay its bills has triggered anxiety throughout global markets.

In a speech from New York on Tuesday afternoon, IMF chief Christine Lagarde said that if U.S. lawmakers fail to raise the debt ceiling they could damage markets worldwide.

But Flaherty said he believes Congress is already aware of how grave a default scenario would be.

"I know that they are fully cognizant of the consequences of failing to arrive at some sort of agreement," he said.

To keep abreast of the negotiations, Flaherty added that he is regularly speaking with U.S. Treasury Secretary Timothy Geithner about the situation.

Despite the urgency of an early-August deadline, Flaherty said that it's important that Congress reaches a deal that remedies long-term U.S. debt problems as well.

"It matters that the United States work toward a plan to have their fiscal house in order," he said. "That matters for all of us, including Canada."

But a short-term solution might preferable given Washington's current stalemate said Konrad Yakabuski, the Globe and Mail's Washington correspondent.

"It could be a very short-term agreement…that increases the government's borrowing authority for a shorter period than the president would like but that would give them more time to reach a broader deal," he told CTV's Canada AM on Wednesday.

Yakabuski shares Flaherty's confidence that U.S. lawmakers will reach a decision within the week.

Markets respond

Meanwhile, Congress' debt impasse has already had an effect on Canada's currency rate.

On Tuesday, the Canadian dollar closed above 106 cents U.S. -- its highest level since November 2007.

The three-year-high can partly be credited to anxiety surrounding financial unease in the U.S. As traders grow more and more uneasy about the greenback, they've started turning to the loonie as a safe refuge.

"The U.S. dollar is being aggressively sold on the U.S. currency market," said BNN host Michael Kane.

But Canada's soaring loonie is a double-edged sword, Kane told CTV's Canada AM.

While the loonie's value will likely persuade Canadians to take advantage of sales at U.S. stores, a high exchange rate might deter tourism, he said.

With files from The Canadian Press and The Associated Press