From a left-wing Keynesian perspective, it is tempting to wonder whether the debt ceiling deal’s likely contractionary impact on economic growth is finally sinking in, but even that explanation doesn’t seem sufficient to account for a market plunge on this scale.

The failure of the U.S. political system to properly address a slowing economy is surely an important underlying factor propelling Thursday’s sell-off. But let’s not underestimate the extent to which Europe’s ongoing sovereign debt crisis is responsible for the fear and panic spreading like wildfire throughout investor circles. Maybe it’s just as simple as this: The resolution of the debt ceiling ridiculousness cleared space for the world to focus on what’s going on in Europe. And now that we’re paying attention, we really, really, don’t like what we see. The parallels to the credit crunch of 2008 get stronger every day. Capitalism, having been denied the opportunity for utter self-immolation three years ago, is eating itself alive, again.

The full story of the European financial crisis is a tale as old as the entire project for European monetary and political union. Basically, it’s turning out to be extremely difficult for a group of nations to share a common currency without centralized control over fiscal and monetary policy or real political unity. The problem is exacerbated by a classic North-South divide. Thrifty Germans don’t want to bail out profligate Greeks. But German banks are on the hook for loans to Greece, so everybody’s stuck.

It’s been clear for a very long time that Greece’s financial situation was so bad that the country would eventually be forced to restructure its debt or default. The first tentative steps toward that restructuring came earlier this month. But as long as the sovereign debt problem was confined to relatively small nations like Greece or Portugal or Ireland, the actual cash necessary for a bailout that would ease the pain of default was considered manageable. As John Lanchester wrote in his excellent summary of the Greek mess earlier this summer, European monetary authorities “can write a check and buy the Greek economy, or the Irish economy or the Portuguese economy.”

But Spain is the world’s twelfth-largest economy, and the [European Central Bank] can’t just write a check and buy it. A Spanish default would destroy the credibility of the euro, and quite possibly the currency itself, at least in its current form.

The same goes for Italy, the world’s seventh largest economy. The big scary news this week is that “contagion” has spread from the little guy to the big. Bond investors are now questioning whether Italy and Spain can pay off their government debt. Rumors that Italy may be forced down the Greek path are flying through the markets. As a consequence, the yields that investors will accept for buying new Greek or Italian debt are rising sharply, which further raises government borrowing costs and makes Italy and Spain’s fiscal situation that much more disastrous. To complicate matters even more, the biggest holders of government debt in Europe are big Europeans banks, who are watching their own balance sheets deteriorate by the day.

The self-fulfilling and self-perpetuating aspects of this dynamic are obvious. Bond traders get nervous about government finances, and start pushing markets in directions that make government finances degrade further. And so on. When government leaders point this out, pledging their “sound economic fundamentals,” their self-serving avowals just act as another message telling traders to sell!

And suddenly, we see commentary like this, from the Wall Street Journal:

What was a battle to avoid a costly bailout has now become a push to avoid a doomsday scenario.

Sound familiar? A banking crisis, panicked speculators pushing markets into a self-sustaining downward cycle, a succession of patchwork responses by government that never seem to quite get a full handle on the situation … it’s 2008 all over again, except this time, we’re not merely wondering which Wall Street financial titan will be the next to topple, but instead are waiting to see which sovereign pillar of the global economy is about to join the hit list. Italy and Spain this week — France next?

The global economy can’t bail out economies of that size. Something will have to crack.

Today, that something was the U.S. stock market.

But Gallup finds that Democrats favor the plan by a 58-28 percent margin, with liberals supporting it at a 51-35 percent rate. That’s compared to Republicans, who oppose it by a 64-26 percent margin and conservatives, who are against it by a 64-25 percent spread. Overall, Americans are against the plan, 46 to 39 percent.

These numbers are helpful in several ways.

First, they further confirm what has been true for most of Obama’s presidency — that the idea that a broad intraparty backlash against the president is taking hold is probably overstated. This doesn’t mean that there aren’t many rank-and-file liberals who share the commentariat’s conviction that the president has fundamentally betrayed them, in this instance and in others. The fact that nearly 30 percent of Democrats — and more than a third of liberals — say they’re against this plan is not insignificant.

But even more significant is the fact that, despite the loud outcry from television hosts, pundits, writers and even a few elected officials, majorities of Democrats and liberals still say they’re with the president on this — even though Obama himself made it clear that he didn’t like parts of the deal. Moreover, a separate Gallup poll released as the deal was being finalized also found no significant slippage in Obama’s approval rating among Democrats and self-identified liberals; in fact, his standing with liberals actually edged up slightly in the last week of July. Granted, any slippage with his own base is a potential problem for Obama, but the numbers do not suggest a repeat of Jimmy Carter, whose standing with Democrats was much, much lower at this point in his presidency — so low that it prompted Ted Kennedy to challenge him in the 1980 primaries. Obama’s problems with his base are much less serious.

Much more worrisome to the president may be Gallup’s finding that independents oppose the deal by a 50-33 percent spread. It’s true that the term “independent” is generally misunderstood; most independents are actually partisan Democrats and Republicans who cling to the independent label out of some kind of self-delusion. So when you consider that actual Republicans are strongly against the plan, it stands to reason that a good chunk of independents automatically will be as well.

That said, Obama’s debt ceiling posture — playing the role of Mr. Reasonable — was designed to appeal to the chunk of independent voters who truly are independent. Gallup’s numbers aren’t broken down sufficiently, but it seems clear that he failed to do so — especially when you consider that the other recent Gallup poll pegged Obama’s approval rating among these “pure” independents at 28 percent, an 11-point drop from a month earlier.  So far, “triangulation” doesn’t seem to be working for Obama.

So while it’s good news for Obama that his base still isn’t in revolt (and probably never will be), he’s got a much bigger problem: He seems intent on following Bill Clinton’s 1995/1996 playbook, but the magic ingredient that made it work for Clinton — a growing economy that made “pure independents” eager to give him the benefit of the doubt — is missing this time around. Playing Mr. Reasonable looks a lot different to voters when they’re out of work or fearing for their jobs.

 On the other side of the spectrum, you have Matt Damon, who always keeps abreast of current affairs … especially when they concern the GOP using his buddy Ben Affleck for its videos.

 ”The Office’s” Rainn Wilson chose Twitter as his megaphone, agreeing with Damon that as a wealthy person, he should be taxed more.

Denis Leary also chose to tweet his opinions about cigarettes, debt and taxes.

And last but certainly not least, Harry Belafonte admonishes Obama on CNN:

“There has never been such a void in moral truth as it now exists,” Belafonte said. “And what the expectation has been for many of us was that Barack Obama would bring to the table a great sense of moral fortitude. I think were he to apply that in the decisions that he would have to make, he would find that his presidency might touch on a level of greatness that he has not yet considered.”

He added, “He [Obama] has only listened to the voices that shout the loudest, and it’s all those reckless right-wing forces. It’s almost criminal.”

Cold words from the crooner, but maybe he has the right of it after all. Thoughts?

Langone, former head of the New York Stock Exchange, just doesn’t really make a lick of sense.

Ken Langone wants higher taxes on rich people. He wants the debt ceiling raised. And he wants his taxes raised. And he wants tax loopholes closed. And he wants government investment in education and job training. In other words, he is, in the current political environment, basically a liberal socialist Democrat? He is more or less aligned with Paul Krugman here. Obama wants all of these things, too!

Except Langone has a big problem with the politician who shares all of his major economic policy goals: That politician is also mean to rich people.

Langone told CNBC that Obama’s behavior has been “unpresidential.”

“He is dividing us as a nation,” Langone said. “He’s not bringing us together. He’s willfully dividing us. He’s petulant.”
[...]
“Ronald Reagan would never go into the Oval Office without his jacket on—that’s how much he revered the presidency,” he said. “This guy worked like hell to be president…Behave like a president. Let me look at you as a model to how we should behave. What does he say? Fat cats, jet airplanes. What is the purpose? Us versus them.

“The thing I fear the most about the future of America is…divide us, we all lose. This has got to stop.”
[...]
“He is not acting presidential. He is behaving in a way designed in my opinion to divide us, to make us look at each other with skepticism, with suspicion. That is the end of America as we know it,” he said. “The destruction he is inflicting by his behavior will carry on long after we settle the debt limit.”

OK, so … this is just pure cultural baggage with no relation to observable reality. Langone is upset that the president is not sufficiently “respectful” to John Boehner, he’s outraged that the president appeared in shirt-sleeves in the Oval Office, and he’s upset about a two-year-old reference to “fat cats.” Langone wants his taxes raised and tax loopholes closed, but he’s upset that the president briefly campaigned on … closing a private jet tax loophole.

So, there is an extensive fact-check of the Reagan jacket thing, but it doesn’t need a fact-checking, it needs psychoanalysis.

Yes, Americans are all ideologically confused. Voters like liberal policies but vote for divided government. Thomas Friedman dreams of a technocratic center-left third party without realizing he’s dreaming of the Democratic Party. But Langone crying about the president’s lack of respect and then wishing for Chris Christie to run isn’t just ideological confusion, it’s the pathology of the ultra-wealthy under imaginary siege.

Guys like Langone should be thankful there aren’t mobs with pitchforks out there, but instead of recognizing that Obama’s their best friend in the country, they’re dreaming that there are mobs, and that this awful populist president is leading them. Imaginary president Black Huey Long haunts them. People like Jamie Dimon and Lloyd Blankfein, who should probably be in jail, are convinced the president who pissed away a significant chunk of his popularity by giving Wall Street all the money it needed to get back on its feet after crippling the world economy is a socialist bent on their destruction. It’s been well-documented, but Langone’s nonsensical rant is a perfect distillation of how stupid these masters of the universe actually are. (I mean, Chris Christie! He’ll bring dignity and respect back to the White House, by yelling at every teacher in the nation, one by one.)

I thought rational self-interest would lead these “fat cats” to support the party that wants to create a stable economy where they can all make as much money as possible, while the bare bones of the social safety net keeps the underclasses pacified, but thin-skinned paranoia apparently trumps all. The president saved capitalism for the rich while overseeing austerity for everyone else, sure, but … he’s uppity! Go ahead and support the guys who want to bring the entire system crashing down, rich guys. Maybe then we will get the pitchforks and torches!

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.