A family that is paying 18.9% on a balance of $8000 has a lot less money left over for basic purchases

Credit Slips: The Stimulus that Can't Stimulate
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How are Americans planning to spend their stimulus checks? According to a new poll, fully 41% say they will use their rebates to pay down debts. Another 19% are trying to protect themselves by saving it, so that 60% have no spending plans at all. Only 7% describe new spending. Debt is blocking a large part of any impact the stimulus package might have had.

[The rest of the breakdown: 17% will spend it on "ordinary expenses," presumably what they would have bought anyway. No, the numbers don't add to 100%--I assume they left out 16% non-responses and didn't knows.]

Why is paying down debt the number one objective of the tax rebate? Take a look at at a BusinessWeek graphic that shows how consumer debt increased 2000-2007 at a rate much higher than in the 1990s. While you are there, read the article on the powerful contraction occurring in consumer spending.

Debt is crowding out consumer spending. A family that is paying 18.9% on a balance of $8000 has a lot less money left over for basic purchases, much less any money to buy anything new. ...
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Posted by: Patches | April 15, 2008 at 01:53 PM

I'm no economist, but it seems to me that American business is now reaping what it's been sowing for years by refusing to share profits with its workers through higher wages. Consumer spending kept chugging nevertheless because of easy credit and the housing bubble, which allowed people to pull the equity out of their homes and keep spending, even though their wages were flat. Guess what? Now the housing bubble has burst, the equity is gone and the credit cards are maxed out. With prices of necessities rising, that flat paycheck can barely cover them (if that). The consumer economy is built on encouraging the purchase of "wants"---buying only "needs" won't support it. And there's no money left for "wants" anymore. Corporate America's chickens are coming home to roost.