Tighter credit means consumers have a tougher time financing big purchases such as large-screen TVs and cars, and small items bought with plastic. It also makes it harder for businesses to expand or to even carry on day-to-day operations.
Svetz, of the Muddy Cup Coffee House, shelved plans to expand, in part because of the economy, but also because when he approached banks, he got the cold shoulder. That's a big difference from just a few years ago, he says. "We asked one of our banks, and they just kind of looked at us like we were crazy," he says. "Getting credit for small businesses is nearly impossible these days."
•Jobs. Bank closures and consolidation in the industry means people are losing their jobs. The meltdown could cost Wall Street up to 40,000 jobs, according to an estimate last week by New York state government.
When someone loses a job, they scale back their spending. That affects the restaurant owner who loses a regular Friday night diner, the dry cleaner who no longer has suits to clean, and the hair dresser whose client stretches out the time between visits.
There is some good news.
•Inflation. After rising at the fastest pace in decades earlier this year, inflation is easing.
Oil closed above $100 a barrel on Friday for the first time in a week, but it's still 28% below its record close on July 3.
While gasoline prices have risen in the past week because of supply issues related to Hurricane Ike, the price at the pump should ease soon, giving drivers a break. Heating costs and other energy prices should also not be as bad as earlier projected, the government says. That will put more spending money into consumers' pockets.
"We've already seen consumer prices fall in the month of August, and they almost assuredly will again in September," DeKaser says. "This is unwinding the tax-like increase that commodity prices posed at the beginning of the year."
•Mortgage rates. Mortgage rates have dropped following the government decision this month to place giant investors Fannie Mae and Freddie Mac into conservatorships.
The nationwide average price for a 30-year fixed mortgage was 5.78% last week, down from 5.93% in the prior week and the lowest since mid-February.
While many people will have problems obtaining a loan, those whose credit is in good shape will be able to refinance their mortgages, likely lowering their monthly payment. The Mortgage Bankers Association's refinancing index was up 88.1% during the week ending Sept. 12.
"One of the best ways to make lemonade out of this mess is to refinance your mortgage," Wachovia senior economist Mark Vitner says.
•Global growth. Although economies abroad, particularly in Europe, are slowing, a number of countries are still going strong, providing a boost to those that export to customers in those nations and that do business there.
Overseas sales allow Xerox to "ride out the storm," Mulcahy says.
Likely in part because of the uncertainty of the rapidly evolving situation, the Federal Reserve last week left its short-term interest rate target unchanged, arguing the broader actions being taken should help prop up the economy. With inflation easing, the Fed now has more room to cut rates to boost the economy.
"The Fed has the capacity now to think more about the downside risks," Goodfriend says.
Wachovia's Vitner says it's possible the economy could make it through OK: "If we can make it through the next three months with any economic growth at all, then we might avoid an outright recession. That would be one of the most miraculous jobs that the Federal Reserve has ever pulled off."
Contributing: Matt Krantz