The Economy

Obviously, nobody traveling hurts their businesses.

But this isn't just about supply and demand for the actual services those airlines offer.

And it's not limited to the airlines.

Those airlines were swimming in debt before the pandemic.

American is sitting somewhere around $25 billion in long-term debt. In the two years prior to the pandemic alone, it had borrowed about $8 billion, most of which went to buying back stock (severely overpaying for it) and paying dividends, things that artificially juice stock prices, but don't necessarily make for healthy businesses.

This is a small example of the misallocation of capital the Federal Reserve created, but will never acknowledge, by destroying all price discovery in the lending markets.

The operating margins of those airlines even when the planes were full, were shrinking, and if there was actual price discovery in the lending markets, rather than Jay Powell as the czar deciding the price of money, American would have never been able to run up so much debt with its business degrading that way.

Even today, if the Fed wasn't creating trillions of dollars out of thin air and furiously using it to try to prop up the debt mess it has created with more debt heaped on top of it, companies like American would already have defaulted and been long past bankrupt.

Take United. Without a government handout, it would have been completely fubared by the debt it is drowning in. How do I know? It tried to access the debt markets again with a $2.25 billion bond offering to refinance some of its securitized loans, and even with the Fed still trying to funnel more and more debt in to prop up its fantasy, United's bond offering failed a few weeks ago and they had to pull it.

If the pandemic ends tomorrow, and planes start filling up, it's not like the absurd levels of debt these companies are in gets magically wiped away. They are past the point of no return, meaning either the Fed can somehow create distortions and destroy free-market capitalism further so that companies can keep rolling over debt at absurdly low interest rates that don't price in any risk (and rob savers, who are necessary for actual investment), while adding more debt on top of it to prop up the fantasy of debt equaling economic growth ... or we need a very severe deleveraging, which means going through the worst default cycle the world has ever seen.

When that comes (they won't let it happen without first doing everything they can to make the mess worse), it is going to drag our economy into a sad state for years. The potentially productive capital from the future that could have made for a healthy economy was dragged forward to be wasted and misallocated for a fantasy we've been living.