Before markets reversed in short-covering and profit-taking, 10-year T-notes fell to 3.09 percent and mortgages briefly to 4.75 percent. Typical of "flights to quality," Treasurys fell further than mortgages and reversed harder, now 3.33 percent and 4.875 percent, respectively.

Nothing has changed in the fundamentals behind the rate decline, certainly not in Europe. U.S. manufacturing has enjoyed temporary inventory rebuilding and export sales (April orders for durable goods soared 2.9 percent), but the overall economy is more "L" than "U."

Before markets reversed in short-covering and profit-taking, 10-year T-notes fell to 3.09 percent and mortgages briefly to 4.75 percent. Typical of "flights to quality," Treasurys fell further than mortgages and reversed harder, now 3.33 percent and 4.875 percent, respectively.

Nothing has changed in the fundamentals behind the rate decline, certainly not in Europe. U.S. manufacturing has enjoyed temporary inventory rebuilding and export sales (April orders for durable goods soared 2.9 percent), but the overall economy is more "L" than "U."  April personal spending was flat, and weekly claims for unemployment insurance have now failed to improve for five straight months.

April and May housing numbers reflect the crowding to beat the tax credit expiration. However, housing reality lies in the first-quarter FHFA appraisal-based report: Of 301 metropolitan statistical areas, all but 10 lost value year-over-year.

Not even record-low rates will fix this economy. We need to rethink, and we’re not.

Recent events read like something out of a "Saturday Night Live" sketch, which might go something like this:

Several very well-dressed people climb out of a Mercedes parked near the top of a long hill. The driver has neglected to set the brake, and as the group chats in European accents, the car begins slowly to roll downhill.

"Perhaps we should do somsing?" Chancellor Merkel replies: "It is ze vault of ze driver — let him get back in." Another says: "But, it is likely to stop by itself, no?" Another: "Caution would say — and we are cautious — that we should ask for help?"

The driver departs for a nearby bar.

Car gains speed, group in pursuit at brisk walking pace. "Senora Merkel, if we cannot stop it, we can always get another one." And who vill pay? "Why, you Germans make these things. Don’t you have another one just lying around somewhere?" Vee vill not pay for ze driver’s miztake. (Mumbling in French: "Bochecochon …")

"We could make an announcement … guarantee that it will stop?" And vot if it von’t? "Then we can borrow to back up the guarantee, and we all have taxpayers."

Across the street another Mercedes has pulled to a stop. Out step several well-dressed but uniformly black-suited Chinese, and the American Treasury Secretary, who overhears the "taxpayer" suggestion.

"No taxpayer bailouts!" he shouts across the street, hustling to catch up to the Europeans. The elder, senior Chinese to the others: "Do you suppose, if we stop feeding the Americans when they visit, they would stop coming?"

The American to the Europeans: You better do something about that car pretty quick. "Senor, what car?"

THAT car. "Oh." We think that you don’t understand urgency, or proper economics. You must quickly get your fiscal house in order, stop spending and raise taxes. "But, monsieur, if we do so we will wreck our economies." You still don’t understand: in order to afford a new car after this one crashes, you must stimulate with fiscal spending.

Pardon. Which is it: fiscal discipline, or fiscal stimulus?

"Yes. Now you’ve got it. Works great for us. Better hurry."

The Chinese are still within earshot. "Let me get this straight. We are killing ourselves and our land, water and air to make stuff to sell to these people to get their money. But, the way they are going, they won’t have any money." The elder leader: "That would be OK, anything would be OK, as long as the Americans will stop coming to visit. And stop talking."

Now only the German is huffing after the car, herself about to crash. The other Europeans have stopped to discuss guarantees and borrowing. "We don’t have any money. Only taxpayers have money. If we guarantee to borrow and borrow to guarantee, how long will it be until someone finds out that we don’t have any money?"

The American: "No taxpayer bailout! Cut! Spend! Regulations! Reform! Recovery!"

The top Chinese: "I don’t like the looks of this. If we hustle, we can make it back to our car before they ask us …"

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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