The Keynesian Cheerleaders have met their moment of truth: gas or brake? Geithner went to plea for more stimulus from Europe and Japan, betting that more deficits now will produce growth and future taxes to pay down the debt. The Europeans have hit their limit and politely told Geithner where to go.

The Government Bubble has just burst.

Hungary is about to join the PIIGS with unsustainable debt, and the Euro has broken below the recent trading range and is below $1.20 - down from $1.50 not so long ago. The next support is around $1.16-1.18. It is in a wave 5 down and could easily overshoot these levels.

All the rescue plans have been for naught, as the wolfpack continues to call the bluff of the finance ministers. Now even the core countries of Europe are seeing spikes in their CDS spreads. This witty video from Australia gets across the point that investors have figured out: indebted nations cannot bail out the broke nations.

While the sudden surge in core country CDS spreads may abate, it appears we have crossed a very critical threshold: belief in the wisdom of assuming debt for temporary stimulus. The Illusion of Stimulus has been punctured. The Keynesians have no clothes.

There is anger brewing over the failure of Keynesianism: people feel like they have been sold down the river with false promises of easy money in order to line the pockets of overpaid public workers, nefarious bankers and corrupt politicians.

There is no one in the blogosphere better at projecting that anger than Karl Denninger, who rants that the attempt to re-ignite private credit growth has failed. By his calculation, we borrowed 12% of GDP last fiscal year, and are on track to do it again this year - levels well above the 5-6% of Hoover and FDR in the Great Depression. With the backlash against this growing, the US may be forced to pull back to a more sustainable 3-5% level. That drop of around 8% will come out of GDP by the way it is calculated, whether it is a drop in spending or a massive increase in taxes, icing the coming double-dip recession.

With total government debt at 130% of GDP in the US (including State and local debt as well as unfunded future obligations), this point was inevitable here as well - our leadership simply has not been prepared to come to grips with the dimensions of the problem, blindly having faith in Keynesian prescriptions.

Obama's Summer of Disillusionment is upon us. His cool, collected style is now viewed as a profound failure of leadership. Already his most visible gushers of support have begun to publicly air their disappointment (Maureen Dowd, Tom Friedman, Frank Rich, even Chris "I get a tingle down my leg" Matthews). James Carville rebukes him for his failures with the oil spill. Quietly, his army of true believers are bailing.

What happens now is laid out by Karl: we are entering an Austrian-Economics style debt-deflation spiral, and there is no longer anything the government can do to prevent it.

The size of potential fall in private debt is well beyond the ability of the government to fill ($52T of total debt vs $13T of Federal deficit). We were at about half that total amount of debt just a few years ago when the Greenspan Bubble began ($26T vs $52T), and we may be headed back that far. Bubbles tend to retrace to their start. Hang on to your hats. And wallets.