A "short-circuit" between the value of assets and the act of valution?

Literally, a short circuit is an electical fault in which some conductor bridges the electrical circuit before the electricity reaches its intended target. So, for example, if you were foolishly working on your electrical wiring, and you accidentally laid a screwdriver across two bare wires leading to an electric light, the electrical curent would flow through the screwdiver (and probably through you), rather than to the electic light. It is a common cause of electrical fires.

In figurative language, a short circuit means something which bypasses rules or procedures, or something which hinders or frustrates an effort. In this specific case, short circuit means that the normal process by which one's financial evalution (the evaluation of one's financial position) has been bypassed by the illusion of wealth. Because the property is over-valued, because of this "short circuit" between the real value of one's assets and the perceived value of one's assets (the act of valuation), the individual feels wealthy, and spends money accordingly. The author is saying that this "short circuit" can sustain an economy for a long period of time because people spend their money as though they were wealthier than a fair evaluation of their assets would indicate.

That may not be all that clear, so please ask any question you need to to ask ot try to understand this figurative usage.

That depends, of course, on whether you were bright enough [no pun intended] to hold onto the correct end of the screwdriver. The correct end being the insulated end.