The great indicator — the 10-year Treasury note — for the second week in a row held all of its straight-line gains since early April, from 3.6 percent to 3.15 percent.

Despite the Fed mumbling about reversing extraordinary ease (some decade ahead), despite all sorts of positive media spin, despite LinkedIn’s post-initial public offering value of $10 billion (649 times earnings), global investors are buying U.S. Treasurys for safety.

Low-fee mortgages touched 4.625 percent for the first time in six months, refinancing applications up, purchase applications sinking 3 percent last week. April housing starts fell 10.6 percent and permits 4 percent, both versus expectations for gains.

Sales of existing homes fell 0.8 percent from March, as reported by the National Association of Realtors’ highly questionable, seasonally adjusted "lipstick factory."

Industrial production was flat in April, but distorted by parts-supply interruption in Japan. Although the Philadelphia Fed index crumped from 18.5 in April to near-breakeven 3.9 in May, manufacturing is still a bright spot.

This week’s "Baghdad Bob" Prize goes to Mortgage Bankers Association Economist Jay Brinkmann.

After announcing no improvement in first-quarter mortgage delinquencies, he said, "Outlook is good. Market is on the mend." American troops are not in Baghdad, right? (Camera pans around corner, to U.S. M1 Abrams tanks under the crossed swords … "Boom!" They are not there at all … "Boom!")

We have certainly foreclosed through a lot of the weakest households and worst loans. But what will happen to the next at-risk layers, given widespread price declines resuming, foreclosure dumping, and limited credit for absorption?

Next, a tale in two parts: sovereign debt in the U.S. and in Europe. All kinds of people now ask, anxiously, if Congress will fail to raise the debt limit. A few hope we won’t. One local real estate proprietor last week — a nice man, frustrated, clueless: "They have enough money."

Of all the devils whom you consult at 3 a.m., parading across your bedroom ceiling, drop that one. The debt-limit hostage crisis dates at least to 1982.

Republicans will use the lever as best they can, a Democratic-controlled government paralyzed, both parties afraid of the public — and then will extend the limit.

Here we have one Treasury, one tax code, one banking system, and a rather large but single-issuer national debt. Treasury (and mortgage) yields are falling partly from a successful round of quantitative easing (QE2), partly from economic slowdown, but at the moment in largest part because Europe is making another run at falling apart.

The immediate catalyst: the European Central Bank said yesterday that in the event of any restructuring of Greek debt, even something as mild (and useless) as extending maturities, the ECB would no longer accept Greek bonds as collateral.

In addition to the $340 billion in direct debt (largely held by German and French banks), the ECB has floated $126 billion to support Greek banks. Greek 10-year debt reached 16.5 percent overnight, and 2-year debt reached 25.1 percent.

The strong in Europe have demanded Greek austerity to protect the banks of the strong, but Greece has reached economic and political exhaustion. We may be a weekend away (or some can-kicking longer time) from a new drachma, trading at 30 cents on the euro.

The ECB’s panicked threat to pull the plug on Greek banks says shorter is more likely than longer.

In the grand scheme, Greece does not matter. However, dominoes do. The rest of the "Club Med" nations and the whole European banking system are all lined up.

Here, take heart. A Euro-crater would slow the global economy, but cash would race to the dollar and Treasurys. All currency collapses in a hundred years have helped us.

Draw any lesson you wish about profligate living beyond means, and about financial pretense, but do not assume that Euro-default means the same for us.

One nation, one Treasury, one tax collector, one budget — we won’t like the sacrifice, we don’t know which party’s ideas will prevail, and the fix will neither be tidy nor final, but we are not headed down Europe’s road to default. We have structure, means and will.

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