The 1992 Canadian down grade
This story amazed me with the comment "S&P’s cut may serve as a wake-up call as it did for Canada in 1992."
Many times on my blog I have raved that Mulroney was one of our greatest Prime Ministers for what he did for getting Canada back on track for controlling our debt.
In 84 when he was elected the Canadian deficit was $40 billion without debt servicing charges. By the time he left that program spending deficit was gone. There was still the interest on the debt not being covered and debt reduction to tackle, but Canada was already 8 years into working towards turning the debt and deficit problem around.
Indeed, I think one of the main things Mulroney did during his time as Prime Minister was go on about Canada's need to rein in our debt problem, and he made huge gains in the the first steps of what needs to be done to bring deficit budgets and debt under control. The rate of increase in debt was declining through most of his reign. Ok, in 1991 we got Mazankowski as finance minister and he was an idiot, and our rate of increase in spending under that moron was increasing again, so that was the year before that 1992 downgrade, but Canada was in a far worse position most of the decade before.
The deficit/debt problem has two parts that have to be considered, how much more spending do you have then receipts coming in, and how big is the debt. Canada was actually in far, far better shape in the deficit part in 1992 then it had been the preceding decade and in a position to rein it in fairly quickly.
I was going on about this as recently as 10 days ago in the comments of "A visualization of the American Debt."
Something I don't think people completely realize is how enormous the process is to get to a balanced budget. You simply can't do it fast or you completely kill your economy. The US is in a terrible position to rein in the deficit and has massive debt at the same time and is at the beginning of a very long road to turning this situation around, and each year the debt still gets bigger and so the debt servicing charges are increasing and that cuts into any spending cuts.
In any event, in 1992 the S&P's actions were 8 years late in being a so called wake-up call.