John Boehner, R-Ohio

Except, the Dow Jones industrial average has been dropping for eight straight days, and the sell-off accelerated as it became clear that the deal was done. How ironic!

But it’s almost certainly wrong to attribute Tuesday’s big sell-off, as some commentators would like us to believe, to the sudden realization that a fiscal contraction is sure to retard future economic growth. By Tuesday, investors had already figured out that there was going to be a deal — that scenario, as the market-watchers like to say, was already “priced in.” What they didn’t know, and what has been fueling negative investor sentiment all week, was how bad the numbers on manufacturing activity and consumer spending were going to be. There has been almost no good news in the economic data for several months now. Each additional negative piece of data solidifies a bleak narrative: The economy has stalled.

That doesn’t mean, however, that there isn’t a direct connection between the current state of the economy and the decision by Republicans to put the “full faith and credit” of the United States at risk. There’s a good argument to be made that the Republican strategy proactively undermined confidence, with unfortunate economic consequences. Economist James Hamilton spells it out: 

But I think there was some damage done by carrying the drama as far as we did. People were getting nervous about how this would all play out. When people get nervous they sit on the sidelines, and when folks sit on the sidelines, the economy can stall. Concerns about how this would all end up could have been one factor contributing to the July plunge in consumer sentiment, and that loss in confidence could also be relevant for recent weakness in consumer spending. I found myself getting calls from friends worried about what the wrangling in Washington might mean — was it still safe to be holding T-bills, and if not, where should people put their money? A few years ago, hardly anybody was talking seriously about the possibility that the U.S. might fail to honor its statutory debt. Today, there is open discussion of downgrading U.S. debt. Although we got through this episode, a residual uneasiness is still going to be there, and may leave us with less room to maneuver when a real problem shakes people’s confidence.

We now know that economic growth has been slowing all year, for a number of obvious reasons — Japan’s earthquake, high gas prices, European sovereign debt problems, a gradual deceleration in the Chinese economy. An then, as nervousness started to mount, we watched our own government manufacture an utterly unnecessary crisis that froze investors, employers, and consumers in their tracks at exactly the wrong time.

On Friday, we’ll get to see the government’s jobs reports for July. If it comes in low, Republicans will immediately claim that the bad numbers are a reflection of Obama’s stewardship of the economy. But if you were an employer making hiring decisions in July, while watching House Republicans openly root for a government default, would you open up your company wallet? If Americans aren’t feeling confident about the future, John Boehner is at least as much to blame as Barack Obama.

So there will be no disastrous default. But there is also no joy in liberal Mudville. While some conservatives are grumping their dismay that all their hostage demands weren’t met, or that cuts in defense spending are too high, the truth of the tale can be found easily in the gamut of partisan reaction.

The Wall Street Journal is running a lead editorial with the headline “A Tea Party Triumph.“Meanwhile Paul Krugman has been reduced to posting YouTube videos of incredibly depressing Portishead songs. Triumphalism on one side, despair on the other. As Andrew Sullivan summed it up: “In a negotiation where one party is insanely committed and the other is marginally ambivalent, we all know who wins.”

As for everybody else? Their reactions are likely summed up by my nomination for tweet of the day, from the Pew Research Center:

Public Sees Budget Negotiations as “Ridiculous,” “Disgusting,” “Stupid” 

And there’s more where that came from. Because if there’s one lesson that Republicans are likely to learn from this drama, it’s that extreme hardball is rewarded with great victories. Even when Republicans can be credibly accused of overstepping, events seem to end up ratifying their strategy.

Last Thursday, in what appeared at the time to be a massive miscalculation by the House GOP leadership, John Boehner was forced to rejigger his debt ceiling bill after it became clear that he could not deliver the necessary votes from his own caucus for passage. The failure was unexpected and embarrassing, but as some commentators warned immediately, it was a mistake to make too much of it.

Without even the necessity of a full blown market panic to force both sides to the negotiating table, Senate Majority Leader Harry Reid speedily put together a deal that most observers believe matches up more closely to the priorities of Republicans than Democrats. How this happened when Democrats controlled the White House and the Senate and appeared to be winning the public relations battle is an enduring, frustrating mystery, and will likely bedevil Obama for the rest of his term. As his own press secretary conceded:

“This was a mess. There is no question.”

Speaker of the House John Boehner should be proud of himself. He’s had quite a week. On Wednesday Boehner had to delay bringing the first version of his plan to the House floor after his caucus erupted in dismay at a Congressional Budget Office analysis that declared the bill would not deliver the spending cuts originally claimed by the Speaker. On Thursday, after nearly two hours of debate, Boehner was forced to postpone a scheduled vote when it became clear that his measure would not pass. And then finally, on Friday, with only four days remaining before the August 2nd debt ceiling deadline, Boehner orchestrated passage of a bill that has no chance of becoming law.

At the same time, in the seven days since Boehner abandoned the “grand bargain” negotiations with President Obama last weekend, the Dow Jones Industrial Average fell 598 points, or 4.2 percent, its worst weekly showing of the year. It’s almost as if investors were influenced by the Speaker’s remarkably inept performance. It’s almost as if Wall Street is somehow alarmed at the chaotic uncertainty that Republicans have injected into the process by which the U.S. government pays its bills.

So where do we stand? The ball is in Senate Majority Leader Harry Reid’s court. His first step will probably be to “table” Boehner’s bill, thus swiftly consigning it into never-never limbo land. He will then begin the convoluted process of proceeding towards a vote on his own debt ceiling bill.

The big difference between the Boehner bill and the Reid bill is simple. Boehner’s plan offers only a short term hike in the debt ceiling, after which both houses of Congress must pass a balanced budget amendment in order to get the ceiling lifted again. Reid’s bill extends the debt ceiling into 2013.

Talking Points Memo’s Brian Beutler has a nice analysis of the maneuverings necessary to get enough Republican Senators on board the Reid bill to beat back a filibuster. The short version is that the horsetrading is likely to hinge on some kind of trigger that will ensure further, more ambitious spending cuts and tax reforms down the line.

Whatever emerges from the Senate over the weekend will then go back to the House, and that’s where this whole drama will reach its peak. The Republican hardliners are unlikely to vote for anything they deem weaker than the Boehner bill. But Boehner will put his own career in jeopardy if he pushes through a bill that relies on too many Democrat votes to gain passage.

The clock will be ticking down, the markets will be on a razor’s edge, and the health of the U.S. and global economy will be at stake.

Should be fun.