Worldwide credit crunch hammering Puget Sound companies

Now you know why major economic crises in the 19th century were called panics. Almost every day brings a fresh shock. On Wednesday, it was more layoffs at Boeing and a stunning announcement of 6,700 cuts at Starbucks. This is an anxious city in a nervous nation.

But it's not 1929, despite eerie parallels in the financial system and threat of global deflation. We now have government safety nets that would cushion the Great Depression's massive suffering and a federal government with a greater ability to prop up the economy with countercyclical spending.

It's not the early 1980s, either, when the prime interest rate hit 20.5 percent and inflation topped 14 percent.

This is new and different. Anybody who tells you what happens next will also sell you some WaMu subprime mortgages for empty tract houses in Arizona. The heavyweights at the annual World Economic Forum in Davos, Switzerland, have no more clue than the Boeing workers in Everett — perhaps less. We do know some of the key reasons behind this job-killer that began with the housing bust.

It's global and fueled by lack of credit. Bank lending and access to other capital has been severely curtailed, hammering companies across the Puget Sound region and around the planet. Because it's worldwide, almost all markets and sectors are suffering at once. The biggest reason for Boeing's somber outlook is that demand for its planes is weakening and financing is uncertain.

It's a classic banking collapse, made more dangerous by the size of the institutions and the complexity of the suspect securities on their books. It took down Washington Mutual, with horrible consequences for Seattle. Now even Bank of America and Citigroup are teetering. With portfolios tanking, Tacoma's Russell Investments is not immune, either, announcing 420 layoffs this week.

It's mauling average Americans, the people behind that vaunted consumer spending that eased recent recessions. The Conference Board's consumer-confidence index hit 37.7 in December. In the depths of the tech bust, it never dropped below the low 60s. No wonder: House values have plummeted along with 401(k)s. People also are now either losing their jobs or preparing for the worst.

This carries profound implications for retailers such as Starbucks.

It has many wild cards: What happens to China? What about America's historic level of debt, including nearly $1 trillion in unpaid credit-card balances? What more can the Federal Reserve do when its rates essentially are zero (don't expect a new bubble to save us this time)? Perhaps the biggest is how high will unemployment rise?

At 7.1 percent, Washington's unemployment rate increased 2.5 percent from 2007 to 2008. Oregon, at 9 percent, and Idaho, at 6.4 percent, saw even larger increases last year. It could be worse: Michigan unemployment is 10.6 percent. But December's jobless report indicated troubling trends. For example, the increase in unemployment was the largest one-month jump since 1976.

Yep, all this before the consequences of layoffs at Boeing, Starbucks, Russell and hundreds of smaller companies even entered the pipeline.

Rightly done, a significant stimulus is essential. But rebuilding will be long and difficult.

It's not 1929. It is an event we'll tell our grandchildren about, and for a while our warnings about running an economy built on a house of cards may stick.

You may reach Jon Talton at jtalton@seattletimes.com