In yet another sign of recovery, the National Association of Realtors says that sales of existing homes have fallen for a third straight month:

Resales of U.S. homes and condominiums fell 0.6% in February to a seasonally adjusted annual rate of 5.02 million, the lowest level in eight months, raising doubts about the durability of the housing recovery, the National Association of Realtors reported Tuesday.

Sales of existing homes have thus fallen three consecutive months, after having risen steadily through the fall in response to a federal subsidy for first-time home buyers. The tax credit has been restored and expanded to repeat buyers, but there has been no rebound in sales yet.

“The latest report adds further evidence that the extended home-buyers tax credit has so far failed to stimulate demand,” wrote Anna Piretti, an economist for BNP Paribas.

Karl Denninger provides a clue as to why no one is buying:

Let’s cut the crap – the debt channel is stuffed for consumers.  Without the ability to take on more debt the American Consumer cannot continue to buy houses, cars, or anything else that they cannot pay for with current income.

Is Mr. Denninger suggesting that our entire economy is based on pulling forward demand through excessive credit lending and that we no longer have the ability to pull forward demand because the American consumer is broke and unable to take on any more debt because they can’t even pay for their existing outstanding balances?

That can’t be. And even if it were true, the government will do something and make it all better.

We’ve said it before and this is just more evidence of it.

Once the government pulls back on stimulus, subsidies and bank bailouts, the whole damn thing is coming down.

• We still have millions of homes in shadow inventory that have not hit banks’ books because the banks don’t want to mark them as losses.
• We have mark-to-fantasy accounting rules implemented last April that allow banks to make up whatever they deem to be the market rate to value assets – so their books are cooked, well done, in fact.
• Small businesses are refusing to hire new employees because they are not seeing any significant increases in retail sales and because of uncertainty about health care taxes and other government thievery programs.
• We have an official unemployment rate that is stagnant, and only because of the temporary hiring of 1.2 million census workers. The official “under employment” rate continues to climb and is hovering at 16.7%, while the actual unemployment/underemployment rate as calculated by John Williams at ShadowStats.com is approaching 22%.
• We’ve got consumers that are so broke, that even Walmart is losing business to lower prices as consumers search far and wide for any deal they can get on essential goods like food, diapers and clothing. Walmart has started a new campaign of lowering prices on over 30,000 items. This is deflation and credit contraction in action, as consumers struggle to make purchasing decisions with what little money they have left.
• We have a stock market that has year 2000 bubble valuations based on absolutely no certainty of the future. It’s been propped up by massive injections from the Federal Reserve and direct actions by the President’s Working Group on Financial Markets a.k.a. the Plunge Protection Team.
• Fundamentally, nothing has changed. Instead of letting the system cleanse itself, such as allowing home prices and stock prices to return to a state of equilibrium, our government, with the help of the Federal Reserve, continued to pump price to give us the illusion of recovery while saddling us with untold trillions in debt .
• And over the course of the last couple years we were threatened with comments from our officials that the system was “on the brink” and “martial law would be in the streets of America” if we didn’t do something to save the system. Just recently President Obama said we avoided a depression. What? Who from our government said anything about depression at any time prior to that speech. The government said this was a recession and that it would be over soon. Now all of a sudden we avoided “depression?”

We don’t know about you, dear reader, but we’re pretty sure that something is going to hit the fan in short order.

Is it all smoke and mirrors as the evidence seems to suggest, or is this just our confirmation bias at work?