OK, you liquidate a debt, yours. Makes sense so far.
the other 99 percent goes out to other customers - investments in business new loans.
Now you create a new debt and it is more likely a consumer rather than business debt. So what has happened is a debt transfer from one individual to another. In essence, we are back to square one ;-)
Correct, but your premise is that by $-volume an equal number of debtors stepped up to borrow that money again. But the point of the revolving credit reports is that, no, on balance, revolving debt went down, and other reports show re-fi and mortgage apps falling as well. The valid point has been made that with lower balances, folks may run up their cards again in the future.
However, even if other borrowers stepped up or revolving credit is run up in the future, the velocity of money slows because debt was repaid in the 1st transaction, rather than spent.
Hardly! Someone bought something with that new debt! This improves our economy just as effectively as spending it at the Mall.
Reducing or eliminating debt is a good thing for the long term and it needs to happen. The consumer has been spending money like drunken sailors for years. Real savings rates have been negative for a while. How long can consumers continue to spend 105% to 110% of their income? With interest rates jumping last month, the refinance boom is now coming to a quick end. Yes, new housing numbers recently spiked to a 17 year high, but that was people rushing in, fearing even higher rates. It was a very large blip, but a blip nonetheless.
Whith interest rates rising, the consumer will have to pay more to service the debt he/she has already stacked up. The people paying down their debts with these checks are doing what needs to be done, not what the feds want them to do.