Spanish housing, Spanish gold

What's the relationship between a Spanish housing boom that is quickly going bust and a Spanish central bank that is exchanging gold bullion for cash at a rate that has the country's armored car drivers pulling double shifts?

Dunno. But it sure is interesting to speculate.

A few days ago Bloomberg reported that abandoned housing developments, "ghost towns", now litter the coastline and of the inevitable first decline in home prices since record keeping started in the early 1990s.

Too much easy money and too much reckless lending have caused home prices to skyrocket in recent years and now, after too much home construction, there's a glut of inventory sitting on the market at prices that no one can afford.

Sounds familiar.

Meanwhile the Bank of Spain has been selling gold bullion at a rate never seen before. In a period of just three months almost eighty tons - one-quarter of their entire reserves - have exited the bank's vaults. Economic Minister Pedro Solbes claims his intention is to make the bank more profitable by investing the proceeds in fixed-income bonds that provide a return.

While many analysts believe that the gold price will continue to rise at rates far exceeding the return on bonds (it's averaged about 20 percent per year for the last five years), Mr. Solbes apparently wants to go for the sure five percent rather than waiting to see if gold will make new highs later this year and then move toward $1,000 an ounce.

Sounds familiar.

It seems that things started to unwind a few months back as a booming Spanish economy that had provided stellar job creation and a giddy, decade-long rise in asset prices began to flounder.

In May, the Economist reported that a big part of the problem lies in a trade imbalance that trails only the U.S. and the U.K. in absolute size. Trade deficits are the exception and not the rule in the Euro-zone and Spain's trade gap of 9 percent of GDP bests even the standards set by English speaking countries.

In a world awash in easy money, apparently the home-grown housing boom has led to rapid increases in borrowing and spending by an increasingly wealthy populace and now home prices and debt loads have become unmanageable.

Sounds familiar.

What doesn't sound familiar here is any connection between a troubled banking industry with an increasing number of bad loans to deal with and a central bank with an obvious need to "get liquid" in a hurry.

Is there a connection here or is a housing bust and the central bank's "dash to cash" just an interesting coincidence?