Back in 2011, the chartered financial analyst served as Standard & Poor’s director for sovereign credit ratings, a position in which he clashed with the Obama administration over the unsustainable trajectory of America’s debt.

Swann took the historic decision to strip the country of its prized AAA credit rating by a notch, in the process sending U.S. equities into a tailspin they only recovered from six months later. More than a decade after, his former peers at Fitch finally followed suit this month, leaving Moody’s as the lone credit rating agency with a AAA rating.

“I expected the others to follow, eventually. It took longer than I expected, but it is happening,” he told the New York Times. 

Asked how he felt about this month’s decision by Fitch to likewise downgrade the United States, the ex-S&P analyst replied, “It was vindicating.”

Sensitive issue

The issue is extremely sensitive, because a fundamental reason why the U.S. can live above its means is thanks to it printing the global reserve currency, an advantage that would be at risk if the country’s reputation takes on too much water.

The dollar’s enviable status typically allows the U.S. to borrow at interest rates lower than other peers, as companies are forced to hold greenbacks in order to settle their accounts when conducting international trade. One of the surest signs of stress in the global financial system is when the Federal Reserve rushes to provide more dollar-denominated lines of credit to the world’s central banks.

At the time Swann was making headlines around the world, U.S. federal debt was expected to hit 74% of gross domestic product for 2011. He projected it would soar to 85% a decade later—a forecast the Obama White House disputed. 

He did in fact turn out to be wrong, but only because the reality proved far worse than even Swann expected. 

“Today it is well over 100% and still predicted to significantly increase from here,” the ex-S&P manager added on LinkedIn on Monday. 

In fact, Fitch estimates the figure to be closer to 113% as the U.S. has borrowed heavily to stimulate its economy. By comparison, the 20 European nations sharing the single currency reported an official debt-to-GDP ratio of only 92%. That is because market forces compelled euro area countries to already begin consolidating their sagging finances at the cost of growth. 

“A sovereign credit rating is not an opinion on the country’s economy per se,” Swann explained, “but on the likelihood that holders of the government’s debt will be paid on time, in full and unconditionally.”

Fitch came close to downgrading the U.S. 10 years ago

Swann’s 2011 warning shot highlighted for the first time that a vibrant U.S. economy resilient to outside shocks is not enough to guarantee a gold-standard rating if there are internal risks that can prove just as damaging, if not more so.

Back then members of the informal “Tea Party” movement—aligned with the conservative wing of the GOP—had sparked an unprecedented crisis by using the debt ceiling to hold the nation to ransom.

Ever since it has become a political bargaining chip, with Donald Trump urging his Republican Party in May during a CNN town hall to force a default—even if that meant plunging the country into a crisis. (When asked by the broadcaster what had caused him to change his more moderate view since leaving the White House, Trump replied, “Because now I’m not president.”)

Fitch had come close to downgrading the U.S. when it placed the country on credit watch negative in October 2013 following another congressional standoff with the Tea Party over the debt ceiling. Yet it subsequently backed down, affirming the government’s gold-standard creditworthiness.

A decade later Fitch now knows what Swann felt like in 2011. Its ratings analyst has since gone on a media tour, speaking with a number of different outlets to justify his decision amid a backlash.

Swann said part of the reason a handful of mainly European countries including Germany retain their AAA rating is because others are not hobbled by the same level of hyperpartisanship as the U.S. Most of the world’s leading industrial nations are parliamentary democracies, meaning a prime minister must have a majority in the legislature in order to form a government, which prevents the kind of crippling gridlock common in the U.S. when different parties control the White House and Congress.

“A strong economy helps [the United States] enormously, but dysfunctional fiscal governance can outweigh that strength,” he told the New York Times. “The remaining AAA countries have stronger track records than the U.S. when it comes to fiscal governance.”