Conspiracy Theorist: 4/5/16

US housing sales plummet

The Fed’s credit-induced bubble is popping
By Mark Luedtke

It hasn’t been proven Mark Twain said he wanted to be in Cincinnati for the end of the world because it was 20 years behind the times, but the sentiment resonates and applies to Dayton, too. A recent Dayton Daily News article trumpeted, “Home sales in February beat last year’s numbers in all main statistical categories, according to the Dayton Area Board of Realtors. A total of 801 sales were reported to the Multiple Listing Service last month, a 15 percent increase from 2015.”

That’s a sharp increase, which would indicate strong economic growth in a free economy, but we don’t enjoy a free economy. We suffer a command economy coercively dominated by government, especially the Federal Reserve (Fed), so that jump indicates Dayton is suffering a housing bubble.

But just as the bubble reached Dayton years after it expanded elsewhere, starting on Wall Street, the bust that inevitably follows bubbles is slower to reach Dayton. On the same day as that DDN article, CNBC reported, “U.S. home resales fell sharply in February in a potentially troubling sign for America’s economy, which has otherwise looked resilient to the global economic slowdown. The National Association of Realtors said on Monday existing home sales dropped 7.1 percent to an annual rate of 5.08 million units, the lowest level since November.”

The bust is expanding and, like a tidal wave, it’s about to crash everywhere.

Bubbles grow at different rates and times in different locations and economic sectors. That’s because bubbles are created by the expansion of credit when the Fed prints banknotes—funny money, not real money—and gives it to the big banks which subsequently use the banknotes as additional reserves and loan out significantly more credit.

In our fractional-reserve banking system, banks keep only a fraction of the credit they create on-hand in the form of banknotes. If the Fed gives a bank $10 million in additional credit, the bank turns around and lends $90 million to borrowers, holding only the $10 million in reserve. Commercial banks take out loans from big banks, adding another layer to this credit-creation pyramid. Fractional-reserve banking subjects banks to bank runs.

Bubbles expand based on where the first recipients of the newly printed banknotes invest and spend. Much of it goes into stock, bond and commodity markets, artificially driving up prices. People receiving banknotes first tend to buy expensive real estate, driving up prices in New York City, Los Angeles and Miami. Some of it goes into luxury items like yachts and supercars. Since the first recipients buy food and energy like the rest of us, the prices of those goods rise early, although during this latest bubble the shale oil bubble offset the typical rise in energy prices.

Eventually, the banknotes trickle down to working people in middle America, creating small local booms, but late recipients have already been looted because prices have already risen. About the time people start feeling wealthier, the bust hits. Here we go again. And again.

The auto market is poised for another giant bust too. You might have noticed the car commercials advertising 0 percent down and on payments for six months. This has been going on for years, producing subprime car loans.

CNN Money just noticed. “The rate of seriously delinquent subprime car loans soared above 5% in February, according to Fitch Ratings,” it noted. “That’s worse than during the Great Recession and the highest level since 1996.” CNN continues, “But research conducted by a group that tracks people’s credit scores, TransUnion, suggests that plummeting oil prices is a factor in rising defaults because of the flurry of pink slips in the oil industry.” The shale oil bubble, also driven by the Fed, has popped too.

That’s not all. Karen De Coster informs, “With the current state of retail contraction, Kohl’s has announced store closings. Kohl’s follows other retailers hunkering down and shedding costs, including Walmart, Macy’s, J.C. Penney, Barnes & Noble, Office Depot, Gap, American Eagle, Aeropostale, Abercrombie & Fitch, Wet Seal and Kmart/Sears. That’s quite a list of recent closure announcements.”

Unless we take away government’s power to steal, rulers will end up owning all our property, creating a modern version of feudalism.

The Fed created over $3 trillion in new banknotes, expanding its balance sheet from $800 billion to $4 trillion, since 2008. The coming bust will be proportionally destructive. That’s why billionaires are building doomsday bunkers with the Fed’s funny money.

Mark Luedtke is an electrical engineer with a degree from the University of Cincinnati and currently works for a Dayton attorney. He can be reached at

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Megan Garrison grew up in the small town of Lampasas, Texas, spending her time immersed in Ernest Hemingway novels and dreaming of being a journalist one day. Now she attends the University of Dayton and is hard at work studying to be a war-time correspondent. Though she is very goal oriented and works hard to achieve her dreams she also loves to have a little fun. She DJs her own radio show on Flyer Radio and makes it a point to attend great movies and local concerts. But her greatest love will always be books.

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