The economy is doing better. Everybody knows that. But is this improvement the long-awaited self-sustaining recovery?

The actual, hard data and the bond market say, "Uh-uh." The 10-year T-note is on track today for the lowest closing yield since mid-December, trying to break 3.32 percent, and low-fee mortgages are sliding near 4.75 percent.

December payrolls were forecast to gain 150,000-290,000 jobs, and reality clunked in at 103,000.

Of that, 36,000 were in health care, the only sector of the economy to gain jobs every month of the Great Recession (and a sector that we cannot possibly afford); and another 47,000 in "leisure and hospitality," more than half of that in the subcategory "food and drink." Under these circumstances, booze is a reasonable plan.

The Fed released the minutes of its December meeting. After five pages of "modest improvement" recitation, the minutes state, "The staff’s outlook for real economic activity over the medium-term was little changed."

Next paragraph: "The underlying rate of consumer price inflation … was lower than the staff expected." Deflation is still the worry. (If you read these things, focus on the staff’s commentary, not that of the "participants’" — which tends to be low-horsepower discussion from regional-Fed presidents.)

A true economic turn always triggers upward retrospective revisions of payrolls; we learn in the rear-view that we were doing better than we thought. However, today’s report found only an additional 72,000 jobs in October and November combined.

Further, the center of economic improvement in the fall was manufacturing, but the December making-things payroll gain was a measly 10,000 jobs. That says that demand can be fulfilled by existing capacity and/or that businesses doubt the depth of future demand.

That absence of employment pull-through is still odd, especially as the twin Institute for Supply Management survey indices continued to run upward in December: manufacturing to 57 and services to 57.1 (that the best in four years). Note that these surveys measure better/worse, not level of activity.

Hence, a theory alternate to self-sustaining recovery: The red-hot economies in Northern Europe and China have lifted demand a little everywhere, but their overheating is temporary.

The European heat is more temporary than China’s. A euro hugely too strong for "Club Med" nations is equally undervalued for hyperproductive Germany (supercharging its exports), and that instability grew today.

Many in Europe hope that the European Central Bank will buy Club Med bonds and hold things together open-ended. Today, the bank’s Chairman, Jean-Claude Trichet, said it "cannot substitute for government responsibility. We should be inflexible in applying sanctions if rules are breached."

If Germany intends to inflict Wagnerian twilight and indentured servitude on Club Med, the euro has had it, and so it traded today: the euro is under $1.30 for the first time since last summer’s crisis, and Club Med 10-year bond yields jumped to new highs: Spain at 5.47 percent, Italy 4.82 percent, Portugal 7.14 percent, Ireland over 9 percent, and Greece pushing 13 percent. That is priced for euro-departure.

One way to bet on a "neue" (German for "newcomer") deutsche mark, which would soar on euro breakup: Buy the German 10-year, demand now pushing its yield down to 2.9 percent.

Euro distress is helpful to Treasurys and mortgages, which are objects of flight to quality.

I continue to believe that political stars have aligned behind a deficit "Big Fix," both parties now afraid of their constituents.

The most recent developments: a speech to Congress by U.S. Federal Reserve Chairman Ben Bernanke today, describing the structural deficit in a voice not unlike the sound of a door closing on a stone tomb.

Second, never underestimate signals on the front page of the New York Times.

You pick the real story: "One of psychology’s most respected journals" has published a paper describing strong evidence for extra-sensory perception.

Or this one: Andrew Cuomo, certified "leftie" and new governor of New York: "We need radical reform. And we need it now. New York has no future as the tax capital of the nation."

Both stories ran on page A-1.

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