Long-term Treasury rates rose under pressure from constant borrowing, but mortgages did well, holding at 5 percent with lowest fees. Versus the 10-year Treasury note at 3.7 percent, that’s the narrowest spread ever measured.

Retail sales for February this morning have been mis-described as a strong surprise; in reality, post-revisions, January and February were close to flat versus December.

Overall retail sales have risen 6 percent since the pit one year ago, but are still 6.5 percent below 2008. New unemployment claims are still elevated, running 462,000 last week.

Take good news where you find it: a reasonably stable "L" economy beats the hell out of deterioration. The National Federation of Independent Business released its small-business survey, methods constant since 1973 (www.nfib.com, "SBET"), charts for confidence, sales, earnings and hiring all L-shape since last summer and stuck near the worst levels ever measured.

Stability has a price: the Treasury hosed $221 billion in borrowed cash in February, our largest-ever monthly deficit. Quite the sugar jolt.

The small-business results reflect Main Street conditions, as opposed to life at the fancy multinationals. Those guys began to redeploy two years ago when the music stopped here: shed U.S. costs and labor, and set up turnstiles in the hot, emerging-nation-trade markets. Half of S&P 500 earnings come from overseas operations.

For those with bifocals, the most exciting reading every 90 days is the Fed’s Z-1 Flow of Funds.

This week’s release of fourth-quarter 2009 data exposes healthy imagination among the big-recovery "green-shooter" optimists.

Thursday’s Wall Street Journal announced that credit markets have healed, but Z-1 later that day revealed the worst U.S. credit collapse ever measured. In impressive spin, the Journal today says the absence of credit signals recovery.

Credit for consumers is declining steadily, down $110 billion in 2009, overall now at the same level as 2006. Home mortgages dropped $58 billion in the quarter, and $215 billion in 2009, also to 2006 totals. …CONTINUED

Total debt in the economy grew at the smallest rate ever measured: 1.6 percent in the fourth quarter. However, excluding the Treasury’s massive borrowing, it was 1 percent negative. Think that through: civilians and the real economy are starved of credit, and the Treasury borrows instead. Unsustainable.

One policy is working: the Fed’s "extended period" commitment to zero-percent money. After 18 months of holding zero-return cash, more people and institutions see the non-recovery, trust the Fed to stay put, and have begun to buy "out the yield curve" — that is, buying longer maturity bonds in search of yield.

However, only the highest quality: hence, guaranteed mortgage-backed securities (MBS) are improving, closing on Treasurys, and easy-borrowing big-business buddies of the Wall Street Journal wonder what all the credit fuss is about.

Z-1 shows the whole pattern. The "shadow banking system" was badly abused in the bubble years, but the flipping of securitized loans off bank balance sheets was and is essential to adequate credit supply.

The market for asset-backed securities (ABS) is still dead as a hammer; the total outstanding has free-fallen 25 percent since 2007, a $1.14 trillion hole in supply. The ABS market funded jumbo mortgages … remember those?

Z-1 gives answers to brand-new questions. The Fed bought $1 trillion in MBS last year … so, who sold ’em? A net $300 billion by foreign investors, and the rest by U.S. "households." Households? Yup: bond-market mutual funds, which then bought big-business bonds, and soaked up the flood of Treasurys.

Then a dog that didn’t bite (yet): total second mortgages outstanding, $1 trillion, about the same as 2006, have unwound only 8.6 percent since the 2007 peak.

Certainly, damned few new seconds have been made, and by now defaults should have cut outstandings a lot. A loan departs Z-1 when paid or written-off. Odd that so few have departed.

The $450 billion in seconds still on the books at Wells Fargo, Bank of America, Chase and Citi … you don’t suppose that they’re carried near full value? The underwater ones that roadblock short sales, some banker hoping to get paid someday? Maybe half a dead loss?

Lou Barnes is a mortgage broker and nationally syndicated columnist based in Boulder, Colo. He can be reached at lbarnes@pmglending.com.

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