Events European and domestic have conspired to push the Almighty Indicator to its lowest level in six months: the 10-year T-note has broken to 3.05 percent.

April data still arriving shows a substantial air pocket, which the usual suspects discount as the temporary effect of gasoline prices and supply-chain disruptions after Japan’s March 11 earthquake. There’s more to it than that: the Chicago Fed’s national index dropped from +0.32 in March to -0.45 in April, and -0.7 would signal new recession.

First-quarter gross domestic product was widely expected to be revised up from 1.8 percent but was not, and the consumer spending account was revised down a half-point. Last week’s new unemployment claims were supposed to unwind a quirky rise, but popped up to 424,000.

The song on the broken record here: housing. April pending home sales tanked 11 percent (versus -1 percent forecast), down 26 percent year-over-year. The Federal Housing Finance Agency reported that as of March, homes in 47 states plus D.C. had lost value in the last year, and national prices are back to 2003 levels.

Housing is not waiting for jobs; this economy cannot heal when the entire nation is worried about its most important asset.

Europe. To understand this moment in Europe, watch HBO’s new "Too Big to Fail." The presentation is better than the book — better than any of the books or news shows describing the run-in to Lehman and AIG. The splendid cast nails the characters, and conveys the visceral fear that overtook each of these immensely powerful personae.

Two key lessons: How could these people not see the dominoes lined up behind each one as it went down? Second, although none of the players today gets a shred of credit, at the last possible minute, under stress found only in combat (and even there, you get to shoot back), they found the wisdom and courage to set a firebreak.

Many Americans, maybe most, still doubt the need for that firebreak, dismissing the whole post-Lehman affair as a bailout of banks and the rich. Most Europeans today are in the same spectacular self-serving denial and ignorance.

The analog, Europe to Lehman, is cover-your-eyes close. The Western financial system failed in July 2007, descending into the greatest bank run of all time, institution-on-institution. The Fed for the next 14 months used every imaginable tool to support the system, but only bought time until the dominoes ran their course: Fannie and Freddie at Labor Day 2008, followed in a fortnight by Lehman, then instantly by AIG.

Federal Reserve Chair Ben Bernanke told then-secretary of the U.S. Treasury Henry Paulson that the Fed was exhausted, and Congress would have to supply cash. Congress did, in time; and Bernanke and Paulson found the clarity and guts to pour $100 billion into the filthy hole of AIG to stop the run.

The euro experiment failed last year. Insolvent Greece, Ireland and Portugal have been supported by the European Central Bank, which has bought their bonds and accepted them as collateral from their banks. The ECB last week said that it is at its limit, exposed to some $300 billion of Club Med IOUs. Any "restructuring" will make the ECB insolvent, needing many billions of pan-European taxpayer money to recapitalize.

The other dominoes are lined up: Spain with 45 percent unemployment of those aged 29 and younger, and a gaping hole in its banking system, Italy the most indebted of all, 120 percent of GDP. The dominoes are linked, just as here, by banks packed with each others’ sovereign paper. Soon, perhaps very soon, Europe will have to decide whether to firebreak outside Greece, or let that hopeless case go as we did Lehman.

If Greece is let go, as an object lesson and a hole too big versus benefit, Europe will instantly face its dominoes: recapitalize its banks and the ECB to cover the Greek loss, picking up something like $1.5 trillion in Club Med paper, or …

Germany’s call. Say to hell with it. German taxpayers cover German banks, and go back to some version of Deutsche mark with any nation that can afford our company.

Whichever way Germany goes, firebreak or sauve qui peut (French for "stampede"), cash is already running to the U.S. for safety. Either way, the European economy slows and slows the world, deflation back in play, interest rates to the floor.

Notes to charts, which are nothing short of incredible. The charts, put together by the blog Calculated Risk using data from Lender Processing Services, show two separate accounts: 90-day-plus delinquencies not yet in foreclosure, and homes in foreclosure process. Adding the left scales, together there are roughly 4 million homes headed for distressed resale. This total does NOT include homes already foreclosed and in REO inventory (large debate about that group, somewhere between 500,000 and 800,000).

In the top chart, the color-coded aging-scale reflects how long a loan has been 90 days or more delinquent: purple = one year or more, 40 percent of total (!). In the second chart, the coding shows the time in foreclosure process, no payments made, but not yet taken in foreclosure: amber = 24+ months, 31 percent (!!).

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