But Flaherty also said he believed that U.S. legislators would reach an agreement allowing Washington to raise its debt ceiling 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 a news conference at the upscale Paletta Park Mansion in Burlington, Ont..
"This is very important," said the minister, who was in Burlington to host a roundtable with representatives of small business.
The concern is that U.S. legislators might not agree on raising the amount of debt the country is able to take on before next week's deadline. Default by the government of the world's largest economy would send shock waves through global financial markets.
Flaherty warned that such a development could lead to higher interest rates even as credit became less available for Canada and other countries.
The Canadian finance minister said he is consulting regularly with U.S. Treasury Secretary Timothy Geithner on the matter.
"I know that they are fully cognizant of the consequences of failing to arrive at some sort of agreement," he said.
Flaherty also stressed, however, that U.S. lawmakers need to reach a deal that will also solve that country's long-term debt woes.
"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."
Republican congressmen continue to battle with Democrats and, in some cases, amongst themselves, over that issue.
Many Republicans would like to see the government focus on reducing spending and not raise taxes.
U.S. President Barack Obama and the Democrats favour a plan that includes tax hikes to reduce the deficit.
The ongoing debate has caused tensions to reach a fever pitch south of the border.
Some Republicans have threatened to torpedo Republican Speaker John Boehner's efforts to pass a compromise bill that would raise the debt ceiling.
Credit rating agency Standard and Poors is threatening to downgrade the United States' Gold-Plated AAA rating if the government defaults on its loans.
Concern about the failure to reach an agreement on the debt ceiling caused Obama to take to the airwaves Monday night with a televised address about the importance of reaching a solution before next week's deadline.
The debt ceiling that expires next week is capped at $14.3 trillion. The White House would like to see that figure raised by $2.4 trillion.
Asked if Ottawa had a contingency plan in case of a U.S. default, Flaherty said only that the government would continue to focus on things it could control, like the Canadian economy.