We told you it wouldn't work.

The federal stimulus package that placed $150 billion into the hands of Americans across the country might have offered temporary solace to Wall Street earlier this year, as consumers scrambled to spend their government handout on goods inflating more quickly than you could say "Thanks."

But $600 doesn't stretch very far for one person, particularly in an economic environment where just about everything costs more than it did six months ago. The double cheeseburger is clinging for life on McDonald's (NYSE:NYSE: MCD) dollar menu. Jet Blue (NYSE:JBLU) now charges $7 for a previously complimentary blanket and pillow on flights. And the additional 40% each gallon of gas costs compared to last year has sucked up just about every last penny that consumers didn't plow into shopping sprees at Wal-Mart (NYSE:WMT) and local grocery stores.

Some not-so-stimulating numbers
In the eye of the American consumer, the cost of everyday life is becoming unaffordable. (Then again, many Americans have a generous definition of "daily life.") Compared to the average lifestyle of the last decade of phony leveraged wealth, today's "regular life" is starting to carry a premium price.

It's no wonder that the hefty cost of simply existing, coupled with vanishing wealth from equity declines and crashing home prices, has left the retail world in what seems to be dire straits. American Eagle (NYSE:AEO) and Abercrombie & Fitch (NYSE:ANF) indicated a continued shortage of cash in teen wallets, posting 7% declines in July same-store sales. At both the high and low ends, Saks (NYSE:SKS) and J.C. Penney (NYSE:JCP) posted 5.3% and 6.5% dips in comparable sales, respectively, displaying further weakness across a wide range of income levels.

They weren't alone. According to ICSC, comps dropped on average 5.7% at department stores, 5.5% at specialty-apparel retailers, 3.5% at teen retailers, and even 5.1% in the luxury space. Wall Street was apparently both shocked and disappointed, as all but four of the 29 companies on the S&P 500 retail index fell yesterday.

We're out of money, Uncle Sam
I, on the other hand, wonder what the heck investors were actually looking forward to. Our economy has quite a list of problems that need to be shaken out. And liquidity isn't just a concern at banks right now. Consumers may have been $600 richer two months ago, but I'm guessting that most spent a large chunk of it, if not the whole thing, on everyday necessities. Even upper-class shoppers less affected by rising food and energy costs are trimming extravagant expenses, as they witness their net worth sink with the falling market.

It now seems that little remains of the tax rebate money. The spending spree has come and gone; the intended stimulus made a brief appearance in June sales figures, but it's since lost its momentum. Our government's belief that injecting our nation with free spending money would help to free our economy from recessionary behavior was comical to begin with. Now, proof has arrived that the stimulus package was an utter dud.

Just can't keep up with the Joneses anymore
New capital allocation issues have emerged, as strapped consumers trade in some of the luxury items to which they had become accustomed in order to put food on the dinner table. Borrowing from your home equity to buy that unnecessary item you "simply can't live without" isn't realistic anymore. Retailers and other consumer-centric companies should expect a sales shortage for the next few months at least.

The growing fears surrounding retailers' near-term performance has prompted investors to flee many stocks that rely on discretionary income from consumers. However, while the stimulus package may have been a botched attempt at jumpstarting our economy, we'll naturally recuperate from this damage eventually, and we will inevitably return to our old spending habits.

Depressed consumer spending, and the growing realization that the stimulus has flopped, have given us some of the best stock values we've seen for some time. Strong retail plays are masked by this poor performance across the board. But hidden beneath this temporary mess are solid companies that will successfully convalesce, once our economy begins to regain its strength.

American Eagle is a Stock Advisor selection, and the Fool owns shares of it. Wal-Mart is an Inside Value recommendation. Motley Fool Stock Advisor has recommended numerous retailers, and Tom and David Gardner and their team remain on the hunt for beaten-down companies waiting to bounce back. Discover their latest ideas with a free 30 day trial.

Kristin Graham assures you that she spent her stimulus check wisely. She is a contributing analyst on the Global Gains newsletter and owns shares of American Eagle. The Fool has a disclosure policy.