Title: Fitch Ratings Removes the United States from its List of Risk-Free Borrowers; Former Analyst Expresses Satisfaction
Date: [Insert Date]
In a recent move by Fitch Ratings, the United States has been removed from its list of risk-free borrowers, rekindling debates over the nation’s fiscal governance and creditworthiness. This decision has left Nikola Swann, the former primary analyst for Standard & Poor’s (S&P) sovereign credit rating on the United States, feeling a sense of vindication.
Swann played a pivotal role in the controversial decision by S&P to downgrade the long-term credit rating of the United States back in 2011. At the time, the move was widely debated, with critics highlighting that S&P had exaggerated the federal debt by $2 trillion. However, Swann believed the downgrade was justified and a reflection of a worsening debt crisis.
Both then and now, partisan politics have been cited as a significant factor in the downgrades. S&P referenced “the gulf between the political parties” in 2011, while Fitch mentioned “repeated debt-limit political standoffs and last-minute resolutions” in its recent downgrade decision. The recurring debt-ceiling brinkmanship has highlighted the structural weaknesses in the U.S. fiscal governance, according to Swann.
Swann was asked about the timing of Fitch’s decision and whether it would have been better to downgrade the U.S. credit rating during the debt-ceiling debate. He emphasized that the credit rating agency’s role is to analyze all relevant information, including the seriousness with which Washington treats its federal payment obligations. Updating the assessment after the latest debt-ceiling data point is a natural step.
One aspect of the downgrade that raises questions is whether it makes sense to downgrade the United States without downgrading other AAA-rated countries. Swann clarified that many countries originally rated AAA in 2011, such as the U.K., France, and Canada, have experienced downgrades since then. He explained that sovereign credit ratings are not based solely on a country’s economy but also reflect the likelihood of timely and unconditional payments of government debt. However, he acknowledged the U.S. economy’s influence and stressed the importance of strong fiscal governance.
When asked about his surprise at other credit rating agencies not following S&P’s downgrade of the United States in 2011, Swann expressed that he expected them to eventually do so. While it took longer than anticipated, he believes it is happening.
Addressing the criticism surrounding S&P’s 2011 downgrade, Swann emphasized that it was not an error. The weaknesses highlighted by S&P regarding Washington’s ability to build bipartisan consensus on fiscal management have only worsened since then, as have U.S. fiscal outcomes.
Regarding the future, Swann believes the U.S. credit rating can improve when the country significantly reduces its structural fiscal deficit, achieves a multi-year downward trajectory of government debt relative to GDP, and exhibits credible, medium-term fiscal discipline. Additionally, developing a track record of multiparty political consensus will be crucial, alongside a resilient economy and a prominent U.S. dollar.
In conclusion, Fitch Ratings’ recent decision to remove the United States from its list of risk-free borrowers has sparked discussions on the nation’s fiscal governance and creditworthiness. Former S&P analyst Nikola Swann, who played a significant role in the controversial 2011 downgrade, feels vindicated by the new downgrade and suggests that necessary improvements could lead to an eventual upgrade in the U.S. credit rating.
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