By Greg Peel

The Dow fell 198 points or 1.6% while the S&P lost 2.0% to 1304 and the Nasdaq plummeted 2.7%.

The first thing one notices about these numbers is that last night it was the Nasdaq which copped the brunt, whereas earlier sessions had seen the Nasdaq hold up on good corporate results while the large caps led the market down. That's because last night it was the computers who joined the panic rather than just the humans. Frustrated by the global laughing stock that is Washington, the machines also decided to bail. And they are less discriminating.

Realistically, just after 2pm in New York the S&P 500 broad market index breached its 50-day moving average at 1310, triggering programmed sell orders. These were not selective sell orders, these were "sell equities" sell orders. While a couple of the big defensives in the Dow such as telcos, which trade on much higher volumes, held up, lesser volume stocks were hammered.

And disturbingly, last night's volume was not just suddenly heavy for summer, it was heavy for 2011.

At 2pm the Dow was already down 100 points, so in the last two hours it lost another 100 points. The specific trigger related to the assumption the US Treasury actually had enough money in the coffers to keep paying the bills for another week beyond the debt ceiling deadline. A report released by Barclays Capital last night suggested exactly that, but in response to that release Treasury Secretary Timothy Geithner came out to declare the calculation to be very wrong. On August 2, said Geithner, America will run out of money.

Wall Street had already been weak not just on ongoing frustration, but on a warning from the Congressional Budget Office that the latest deal put forward by the Democrats overstated budget savings, and what's more so did the deal put forward by the Republicans. It is understood that the moderates on both sides are not far off from agreement, but resistance comes from the twin poles of the Democrat Left and the Republican Tea Party. How an agreement can be reached is anyone's guess, unless sanity could prevail.

Yet still no one honestly expects a default, and indeed there is a little used Fourteenth Amendment the president could pull out to prevent such. However a ratings downgrade seems almost inevitable now. China cares nought for US ratings agency opinions, and a similar view is growing in Europe, but in the US many investment constitutions are tied to the views of organisations which lost all credibility in the GFC. And that has Wall Street hitting the panic button at this late stage.

In the dust cloud that is the lunacy on Capitol Hill, another, real, game is playing out. Last night it was revealed US durable goods orders fell 2.1% in June against an expectation of a 0.3% rise. It was mostly lumpy transport orders, but the ex-transport figure rose only 0.1% when 0.5% was expected. And the Fed's Beige Book for July showed a slowing of economic activity in the majority of the twelve Fed districts ? a weaker result than in June when eight of twelve were steady.

Remember how only a couple of weeks ago we were talking about QE3? And how further evidence of slowing would be the likely trigger? The Fed has been rather conspicuous in its silence as the debt debacle plays out. But for Wall Street, even those who take an ultimate debt agreement for granted are pointing to the slowing US economy as the real reason to sell. And on Friday, we see the first estimate of June quarter GDP.

But wait, there's more bad news. Last night the German finance minister hosed down any idea of supporting sovereign bond purchases by the European emergency fund ? a major plank in the recent bail-out platform. Oh great. Oh, and S&P downgraded Greece to even junkier junk from junkie junk, or something. No one batted an eyelid on that one, but the finance minister's comments did spark a sell-off in the euro.

The sell-off in the euro late in the day turned the plunging US dollar around, such that it rebounded 0.8% to 74.08 on its index. This unfortunately had no impact whatsoever on the Aussie, which after yesterday's CPI result is up 0.7% to US$1.1026. It did manage to stop gold in tracks however, which fell US$5.80 to US$1614.10/oz.

Commodity markets had closed before most of the late sell-off in the US and the dollar rebound. Base metals were thus mixed on small moves. Brent oil fell US85c to US$117.43/bbl. The irrelevant West Texas crude reacted to an irrelevant jump in inventories and fell US$2.35 to US$97.24/bbl.

When stocks are plunging there's usually as counter-move into bonds, but who wants to lend America money at this point? Last night's auction of five-year notes was poorly received, and foreign central banks bought 36% compared to a 42% running average. But by the same token, where on earth does one put one's money? We are reminded that when Lehman fell, everyone rushed into US dollars as the safe haven, given the rest of the world stood to suffer more. Last night the ten-year yield was up only two basis points.

The SPI Overnight fell 64 points or 1.4%.

A pox on both their houses.

All this will be discussed today at 4pm