With violent protests and fallen governments across Europe, driven by a powerful backlash against austerity driven by taskmasters in Brussels and at the IMF, it's hard to see how this plan would ever get off the ground. More likely, it would splinter the eurozone.

In the meantime, Europe is swan-diving into a deep new recession as its financial markets seize. Economic weakness will just make the debt problem worse.

Look at Italy. According the calculations by the Financial Times, a 4% borrowing rate on a 120% debt/gross-domestic-product ratio (an optimistic scenario) would require the Italian economy to grow 5% a year just to keep its debt stable. At current borrowing costs of around 7%, growth would need to be 8.4%.

Estimates by the Organisation for Economic Co-operation and Development put Italy's growth at just 0.7% this year and negative 0.5% in 2012. At this point, the math just isn't working anymore.

One final point here. Société Générale analysts estimate that it would cost Europe 1 trillion euros to bail out Italy and Spain over the next four years. In exchange, both countries would be on the hook to the rest of Europe for amounts greater than what Germany was forced to repay in reparations after World War I in today's money -- and would likely be forced to forfeit sovereign control of their budgets.

As you know, a popular backlash over the economic turmoil caused by the Treaty of Versailles, with similarly austere provisions, led to the rise of Adolf Hitler and the Third Reich. And yes, I know how that might sound, but this is a serious situation.

Shock waves at home

If Europe goes down, the United States won't be far behind. Bank of America/Merrill Lynch economist Michelle Meyer wrote in a note to clients recently that if Europe descends into a full-blown financial crisis, she expects the U.S. to fall back into recession. She puts the odds of recession at 40%.

We've got our own problems, too. The failure of the congressional supercommittee to agree on $1.2 trillion in budget cuts has further sullied the waters in Washington and makes any kind of meaningful policy compromise between now and the 2012 elections unlikely.

It also sets the stage for a fiscal tightening next year as tax cuts expire and government spending decreases -- putting the brakes on the economy at exactly the wrong time. J.P. Morgan Chase economists say we'll take a 3% hit to the GDP as the payroll tax credit disappears and unemployment benefits fall back to 26 weeks, from current, federally supported levels of up to 99 weeks.

With the economy growing at just 2% annually, a 3% hit would push us back into recession.

Canaries in a coal mine?

As all this plays out, stocks and other risky assets remain well off their May highs and increasingly appear to be in the grips of a new bear market.

I know this is a big shift from some of my past positions. But ahead of the supercommittee failure, I also asked "Will DC wreck the economy again?". I fear it already has, with plenty of help from Europe.

There is a lot of evidence to support the idea that the 2009 bull market ended when Seal Team 6 shot Osama Bin Laden on May 1 -- zinging the U.S. dollar higher and causing disruption as hedge-fund types scrambled to close their bets against the dollar.

Things have remained extremely volatile since. All the while, internal measures of market health look very similar to what happened early in the last big downturn. Take a look at these two charts for examples:

KMB © StocksCharts.com

Economically sensitive stocks have been lagging less-sensitive stocks for the better part of the year -- a performance not seen since the 2007-2008 downturn. This kind of thing happens when investors grow increasingly worried about the economic future and move into companies like instead of . They prefer exposure to a necessity -- toilet paper -- instead of heavy construction equipment.

This is a hallmark of bear markets.

There's other evidence, too. Commodities, particularly industrial metals like lead and copper, keep moving down. Selling is heavy as people simply pull money out of stocks; the New York Stock Exchange Advance-Decline Volume measure, which tells us how much money is flowing into rising stocks, has been posting lower highs and lower lows. Even investment-grade corporate bonds are under pressure as investors weigh the risk of higher defaults in a new recessionary.

As for fundamentals, Credit Suisse equity strategist Andrew Garthwaite believes earnings-per-share growth will stall next year on weaker economic growth, rising costs and a stronger dollar.

$SPX © StockCharts.com

What's really catching my eye is the way the S&P 500 has dropped more than 5% below its falling 200-day moving average. The last time this happened was in early 2008. Before that, it happened in late 2000. It also happened in the 1937 "double-dip" that made the Great Depression so bad. Each marked the beginning of a waterfall bear market collapse.

What should investors do?

I've been advising trade-minded subscribers to my newsletter and readers of my Top Stocks blog posts on ways to try to catch the market's ups and down for the last few months -- ups and downs that are set to continue, and require quick action to try to play. (Advice along these lines in this weekly column would likely be out of date by the time it's published.)

For average investors, it's much tougher, because stocks are moving based on macroeconomics and politics. Even good companies can get hammered. And there are few attractive alternatives. Treasury yields are in negative territory and are likely to underperform over the long haul.

So for now, hang on by holding off on new stock purchases and moving capital out of stocks and risky bonds and into cash.

At the time of publication, Anthony Mirhaydari did not own or control shares of any company mentioned in this article.