OK, whenever I write about global economics, Transparent's real estate based readers disappear... try reading this though... There is a new economic reality today - heated "global inflation" suddenly appeared last week - and it surprised traders and economists alike. The real estate community is directly affected by the shock - 30 year mortgage rates jumped 1/4% since Friday.

A month ago, I had been mystified by the continuing, almost harping Fed stance warning of US inflation risks while the markets were signaling that interest rates needed to drop to assist a faltering economy and housing market. My simple conspiracy theory idea was that the Fed was working in concert with the Asian Central Banks to keep them buying US Treasuries by promising not to drop the rates (which would devalue their massive portfolio of US Treasuries). It turns out that we're at the mercy of the global poker game, the Fed has no control over the fact that China's high inflation reports last week prompted this latest crisis...

There's one (among several) plausible reason why US Treasury prices are dropping - Asian Central Banks have retreated from buying bonds and are moving more money into equity based investments, as exhibited by the global stock market growth.

As I write this, the BBC News Blog publishes We're all Doomed?, in which Robert Peston posits that we, as in the global consumer, have all been treated to a feast of borrowing long term money at low interest rates. It's catalyzed a global boom in real estate and stock prices over the past five years. Now the low interest rate game seems over, and the gamblers (on a smaller scale, they are the subprime lenders and real estate speculators) are headed for the exits. China itself may be one of the gamblers... saddled with a huge bond portfolio that is losing value daily, it's plowing more money into higher risk / higher return equity investments in the same way a gambler will make riskier bets to cover losses. This kind of portfolio unwinding is inherently destabilizing and Peston points out that although stock markets may maintain their price levels in the short term as Asian money flows into them, higher inflation will eventually cut into profits and force a downturn, a global downturn... and that's where the doom comes in.