The stock market dropped about 2 1/2% today. Proof, proof that Obama’s Kenyan socialist jobs program is wrong for America!

Actually, well, no. The main problem today appears to be the resignation of a senior official at the European Central Bank:

The dramatic resignation of a senior European central banker sent stock markets plunging, amid fears that Greece is on the brink of default and the fragile consensus in Berlin over support for the ailing Italian and Spanish economies was close to disintegration.

(Jurgen) Stark, a German hardliner and former member of the Bundesbank board, has lobbied for the ECB to impose stricter austerity measures on Greece and Portugal and to reject using its funds to purchase Italian and Spanish bonds until Rome and Madrid have made further efforts to reduce their debts and institute reforms.

At a press conference on Thursday ECB boss Jean-Claude Trichet appeared visibly rattled by questioning from German journalists who asked if the eurozone’s largest economy should quit rather than keep subsidising indebted countries.

Trichet said, in a clear warning to colleagues, including Stark, that Germany had prospered from the euro and should maintain its commitment during the worst crisis since the second world war.

You’re going to see these worries and uncertainty rattle world markets until Europe comes up with a solution, whether to move in the direction of fiscal and monetary integration or toward a breakup. And that decision won’t come anytime soon. So regardless of jobs programs or anything else, Europe’s dysfunction will have an impact all over the world.

The truth is that Europe has ducked the real issue for years now. The sovereign debt crisis predictably spread to country after country, and austerity has only exacerbated the problem, leading to higher deficits. The fact that Stark, a pro-austerity hardliner, quit the ECB, is at least a little encouraging from a policy standpoint. But it also might move the EU closer together rather than further apart, and there is no political consensus for either move across national boundaries.

Meanwhile, European banks, the real progenitor of this crisis, are being exposed:

Broadly speaking, there seems to be a consensus within countries. British banks were most willing to swallow bad medicine and admit the (Greek) bonds were worth far less than par value. Some German banks were equally forthcoming, but others were less so. Italian banks seem to have done as little as they could, but did take write-downs. French banks went the farthest to find ways to act as if Greek bonds were just fine.

The first-half financial statements issued by the banks were unaudited, but they were reviewed by audit firms. The same firms — well, firms with the same name — seem to have signed off on wildly different ways of looking at the same underlying market for Greek bonds. In some cases there is enough disclosure for investors to try to adjust valuations, but in other cases there is not.

The situation is so chaotic that the chairman of the International Accounting Standards Board, Hans Hoogervoorst, wrote to European securities regulators in early August to protest that “it appears that some companies are not following” the relevant accounting rule, known as IAS 39. He did not name names, but there was no doubt he had the French banks in mind.

The protest — which was kept secret until someone leaked it to The Financial Times — has so far provoked no public response from the regulators.

So you have euro banks basically lying about the value of Greek bonds on their books, or at the very least creatively using standards. And these are the gamblers who want more money to use on the slot machines.

Finally, the safest investment in the world, US Treasury bonds (contra Standard and Poor’s), saw yet another surge today, pushing the yield to a totally insane 1.915%. Let that serve as a reminder that we can surely afford any deficit spending that we engaged in right now.