TORONTO - International markets are reeling Tuesday, still struggling to come to terms with the down-grade of America's credit-worthiness. In early trading, Asian markets were down about 5% and the trend has been spreading rapidly. The Toronto Stock Exchange and the Dow have each taken significant hits - losing hundreds of points in what has been the single most calamitous week since the onset of the 2008 recession.

Of course, there is more at play than concerns about the United States' mounting debt - the European Union continues to face extreme economic instability and volatility. After negotiating a second, multi-billion dollar bailout for Greece the fears have now turned to containing emerging crises in Italy, Spain and Portugal. In other words, the scope of the problem has increased dramatically and the willingness of member-states to continue funding bailouts is beginning to wane.

Panic mode is setting in - which is not good for Canada.

Canada weathered recession number one better than most - but it is foolish to think that we are above economic instability. Our own house is not quite in order - we have not emerged from our multiple years of deficits, and if we dip into another recession now it can hardly be labeled 'prosperity'. Yes, it is true that our banking institutions were not 'responsible' for the sub-prime lending crisis, nor the incestuous nature with which those toxic financial instruments were marketed and repackaged. This, however, does not insulate us from the effects.

As markets reel, and nation-states pursue knee-jerk reactions to the daily events Canada feels the bite. In fact, early this morning the Canadian dollar briefly slipped below parity with the U.S. greenback. Believe me, the U.S. dollar was not rallying. Rather, this was a warning sign that Canada's economy is part of a larger whole.

Throughout the 2008-2010 recession, Canadians became increasingly smug as we managed to avoid the worst of it. It seemed that every news program was telling us that we were the envy of the developed world.

Yet, we are not invincible. Far from it.

A double-dip recession could prove disastrous for the hundred of infrastructure projects struggling to remain viable and get off the ground in Canada. There are billions of dollars worth of projects striving to get off the ground in our oil and natural gas sectors alone - and if these projects are cancelled or the funding is in jeopardy thousands of high-paying jobs will disappear in an instant.

It is not just in the resource sector that Canada will feel the pinch - much of our economy is export based. As nation-states become more protectionist to prop up their own struggling industries, Canada will be increasingly pushed aside.

One saving grace for the Canadian situation is our current political landscape. Standard and Poor's recent down-grade of the United States' credit status was, in part, based upon an unworkable political stalemate in Washington. The inability of Republicans and Democrats to forge an effective, timely deal to raise the debt-ceiling was central in the credit agency's thinking. Fiscal policy is, after, a function of government. And if government is unable to craft effective fiscal policy, the markets will surely take not - and they have. Canada's majority government will at least avoid being painted with the same brush.

This will be a telling week - whether stocks and markets will continue to slide or if renewed confidence can be found. Rain or shine, Canada will be on this rollercoaster too.