U.S. stocks are plunging over worries that Italy’s debt has become unsustainable, amidst confusion over the political circus currently engulfing Rome.

As of 10:48 a.m. (New York time), the Dow Jones Industrial Average is down almost 272 points, or 2.23 percent, the S&P 500 Index has dropped 31.5 points, or 2.47 percent, and the Nasdaq has tumbled nearly 68 points, or 2.46 percent.

The SDDR S&P Bank ETF (NYSE: KBE) is down 3.4 percent.

The major European bourses are down anywhere from 2.0 percent to 2.6 percent.

In Wednesday trading, yield on 10-Year Italian bonds jumped way above the 7 percent level to as high as 7.46 percent – a record high during the euro era and the ‘danger point’ at which debt is considered unsustainable, leading to either a financial collapse or a bailout.

Portugal, Ireland and Greece all were forced to accept a rescue package once their national bonds reached that emergency yield.

Compounding matters is the fact that Prime Minister Silvio Berlusconi has agreed to step down, but only after the parliament approves a budget reform/austerity package. Italy has to roll over more than 300 billion euros of debt next year – at current rates, that would appear to be extremely difficult.

Reportedly, the European Central Bank (ECB) has been buying Italian bonds in order to calm the market, but yields haven’t fallen that much.
The euro is down 1.7 percent against the dollar.

Yields on 10-year U.S. Treasuries have plunged almost 5.6 percent to the 1.95 percent. Oil and gold futures are down 1.64 percent and 0.71 percent, respectively.