Dan North said investment in the U.S. might slow because of the financial crisis, but not come to a halt.

As the U.S. economic situation worsens, with financial institutions failing and the government haggling over the terms of a bailout plan, Dan North, chief economist at trade credit insurance firm Euler Hermes ACI, told GlobalAtlanta action must be taken to hasten economic recovery.

He said U.S. export numbers, which have buoyed the country’s gross domestic product for several quarters, are likely to fall and foreign investor confidence will be shaken if the crisis continues unabated.

Based in Paris, Euler Hermes has offices in 51 countries, including its head U.S. office in Owings Mill, Md., and a location in Atlanta.

GlobalAtlanta: We’ve spoken with economists who have told us that exports have buoyed the U.S. gross domestic product for the past couple of quarters due to a weak dollar.  Do you think export numbers will remain high as the financial systems crisis deepens?

Dan North: I think that we’re going to see some pressure on exports.  It’s not so much the value of the dollar, it’s going to get weaker, it’s still weak compared to the peak.  But it looks like the global economy is slowing.  It looks like Europe is in a recession, they’ve posted negative growth, Japan looks to be in a recession, that’s going to weigh on exports.

GA: Will the manufacturing base be able to stay afloat?

DN: I think it’s going to be a problem. It’s a matter of slowing growth, maybe negative growth.  It’s not a disaster, but it makes it more difficult if there’s less demand.  I don’t see a really severe recession globally.  The drop in product demand won’t be overwhelming.

GA: If exports have been a strong sector, how would a setback in exports affect the economy as a whole?

DN: It will be a drag on the economy and on the manufacturing base in particular.  If you just look at exports, it’s not a tremendous portion of the gross domestic product, it’s something like 15 percent.  While it will erode gross domestic product, it won’t overtake the U.S. economy in general.  I’m not sure it will overwhelm it or change trajectory.

GA: How do you think the proposed bailout plan will affect the value of the dollar in the long- and short-term?

DN: Surely the consensus is the emergence of the plan will make the dollar weaker.  It erodes confidence in the U.S. financial system.  To put up more and more deficit in the short term will weaken the dollar value.

In the long term, more factors make it difficult to say.  One is eroded confidence.  Typically countries with large deficits have weakened currencies.  If we’re issuing a lot of Treasury bonds, raising interest rates may make the dollar more attractive here; that might support the dollar.  The dollar’s very tricky to play, a lot of it is based on sentiment.

GA: You mentioned confidence a minute ago, is that confidence of foreign investors that the U.S. system is going to turn around?

DN: Yes.  The dollar’s traded globally.  That would be the view from other countries, other economic powers that the U.S. financial system and deficits are in a bad condition.  That will cause other nations to bid the dollar down. 

For example, you wouldn’t want to go invest in a country that has such an enormous debt they can’t pay it off, though that’s not likely for the U.S.

GA: How does the current situation affect a company like Euler Hermes’ business?

DN: We’ve had less effect, felt less effect, we’re more involved in insuring accounts receivable on goods.  What has affected us is we’re in a recession.  That has weighed on the financial sector in many ways.  Recession for us means more companies are going bankrupt increasing our claims.  We’re living in a recession.

GA: What sort of feedback are you getting from your international offices about the financial crisis here?

DN: We’re not getting anything really dramatic.  I think the feeling is around the world we’re the leader in our markets.  Other markets are still doing well.  We realize it’s a cyclical business, we’re in the business cycle.  It feels unusual, there’s something that feels extra-wrong in all recessions.  Most in our business are doing well.  The U.S. financial system, while in a strain, will probably come out all right.

GA: Is that regardless of a bailout?

DN: Something has to happen because if it doesn’t you’d see a tremendous drop in equity prices.  If it doesn’t the rest of the world will throw up its hands and say, “They can’t get anything done; let’s get out.”  Asset prices all over the world would fall dramatically.  They (politicians) are having trouble making it happen.  That’s not surprising but it’s got to happen soon.

GA: So any plan is better than no plan?

DN: For sure.  I think honestly there’s a little bit of political grandstanding going on.  It’s got to get done.  They’d better stop messing around because the markets aren’t going to wait.

GA: What’s the worst-case scenario?

DN: The word “depression” has been battered around.  I suppose it’s not impossible.  If asset prices start to spiral down they could continue spiraling down very rapidly.  I think it’s unlikely, it’s possible though.

GA: We’ve been hearing about a weak economy for more than a year now, when did the trouble with mortgages really start?

DN: You would probably point to summer 2007.  We started hearing about problems with sub-prime mortgages, problems mean people were defaulting faster than they had expected.  There was a hope that it wouldn’t spill over but all credit markets are related.  The more I heard about problems in sub-prime mortgages it seemed it would spill over, and that started about spring-summer 2007.