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On the surface it is puzzling: In theory, lower interest rates spur economic activity. The Federal Reserve repeatedly has lowered rates. Some interest rates are now at 20-year lows.

Where's the activity?The seeming lack of consumer response to lower rates has frustrated policymakers, brought despair to retailers and disrupted election-year politics.

Things just haven't worked out the way they were planned. True, some homeowners and businesses have jumped at the opportunity to pay down their bills, but they don't seem willing to make spending commitments.

In fact, the decline in consumer installment credit since early 1990, widely acclaimed as evidence that households were getting their finances in order, is more than offset by additions to home equity debt.

Moreover, some of those figures on declining consumer installment debt are misleading.

Since early 1990, such credit has fallen as a share of disposable personal income from 18.3 percent to 16.4 percent in May, but some of the decline is a technicality, that being the tendency of drivers to lease rather than buy.

The cost of cars bought on time is included in the consumer installment credit figures, but leasing charges are not. So far this year, leases are up about $2.5 billion over a year ago, but leases, officially, are not credit.

Why should such contrariness persist in spite of lower rates?

Big debts, of course, are one answer. Others are stagnant household income, rising unemploy- ment, job insecurity, and a lack of confidence perhaps engendered by government failure to resolve old economic problems.

There is still another reason: Declining interest rates might help borrowers pay down their bills, but they cut sharply into incomes.

Economists Roger Brinner and David Wyss of DRI-McGraw-Hill make a cogent but often-ignored observation: "Individuals are net creditors in the United States; they receive more in interest payments than they pay out."

In short, millions of Americans, many of them elderly, see their incomes cut every time the Federal Reserve lowers rates. This is bad news for them, and for all those retailers dependent upon them.

Economist Edward Yardeni of Prudential Securities Inc. points out that interest income fell from $738 billion in December 1990 to $671 billion this past June, a drop he called "a staggering blow."

The combination of big income cuts and big debts, therefore, makes a temporarily insurmountable obstacle, one no effort by the Federal Reserve or White House promise seems able to figure out.