This highlights the reasoning for the Fed's dramatic steps over the past seven months. First, by lowering interest and then, in March, by opening up the short-term window to infuse cash. These steps were needed to jump start a faltering US economy. The following provides additional evidence of the potential problem and why the Fed took the steps it did.
From Angus Research: Consumer Debt Manageable?
Against long odds, consumer spending advanced once again in the first quarter. Consumer spending has grown in every quarter since the early 1990’s. But delinquency and loss rates are rising towards recessionary levels across a range of consumer loan products. If consumers are struggling to pay debts, they are less likely to be out ringing the registers. We charted the Fed’s Household Debt Service ratio, which is simply the ratio of all consumer debt to disposable personal income. While the ratio has trended higher for the past decade or so, it remains only about 14%. But the Fed does not break this ratio out by income groups. If it did, we suspect that this ratio would be far higher for all but the wealthiest Americans. Before the recent downturn, home prices had soared. So despite low interest rates, many Americans are spending one-third to one-half, if not more, of their income on their mortgage.
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