vagabond

I haven't thought through whether this applies to the airline industry, but it certainly is what's happening in my little coffee shop, and hundreds of other small businesses.

Employer-consumer standoff is key to economy - Stocks & economy- msnbc.com

jungle

Irving Fisher was an odd but astute economist whose theories were mostly rejected in favor of Keynesian theories, but some of Fisher's ideas seem to be making a comeback. Among them was his theory of debt deflation outlined below, which seems to describe what you are seeing:

"Debt-Deflation"

"Following the stock market crash of 1929 and the ensuing Great Depression, Fisher developed a theory of economic crises called debt-deflation, which rejected general equilibrium theory and attributed crises to the bursting of a credit bubble.

According to the debt deflation theory, a sequence of effects of the debt bubble bursting occurs:

1.Debt liquidation and distress selling.
2.Contraction of the money supply as bank loans are paid off.
3.A fall in the level of asset prices.
4.A still greater fall in the net worth of businesses, precipitating bankruptcies.
5.A fall in profits.
6.A reduction in output, in trade and in employment.
7.Pessimism and loss of confidence.
8.Hoarding of money.
9.A fall in nominal interest rates and a rise in deflation adjusted interest rates.
This theory was ignored in favor of Keynesian economics, partly due to the damage to Fisher's reputation from his sanguine attitude prior to the crash, but has experienced a revival of mainstream interest since the 1980s, particularly since the Late-2000s recession, and is now a main theory with which he is popularly associated."

ryan1234

Fisher also opposed conventional income taxation and favored a tax on consumption to replace it. His position followed directly from his capital theory. When people save out of current income and then use the savings to invest in capital goods that yield income later, noted Fisher, they are being taxed on the income they used to buy the capital goods and then are being taxed later on the income the capital generates.

Cubdriver

Decades ago I took a bunch of economics and decided I like airplanes better. Found myself in grad-level electives with no idea what was going on. Seems like they said people will buy cigarettes and lattes until the bitter end in an economic downturn. So I don't think the problem with free spending at your coffee shop is due to the recession. Maybe it's the competition with 45 other coffee companies in Seattle, though I think the best cup of coffee I ever had was at an FBO at Tacoma Narrows. Try free first drink maybe, or a free first meal. Lure them over somehow.

mshunter

This hoarding of money by the banks is not healthy for the economy. I was listening to KNX1070 yesterday on the way home from work, and according to a recent study thst they aired, banks lending practices are getting tighter and tighter. And all this after they have been bailed out by us (the tax payers). I understand that they don't want to lend to sub-par credit scores, but when it takes a credit score of 760 and above (according to KNX's independent data), for a bank to even begin to think about lending money, how will the economy start a recovery that is worth anything.