Another economic collapse?

The stock market has nosedived 500 points and the economic indicators appear to be disastrous.

This, right after the debt ceiling agreement that supposedly allows the government to stay solvent by borrowing money while also cutting more than $2 trillion in government spending.

Could it be that Keynesian economics is right, that the government keeps the economy going through its spending and that cutting expenditures during a recession is exactly the wrong way to produce economic growth?  Or are the free marketers right and that the trillions in new debt will mean less money for productive investment?  Or, in the worst of all possible worlds, are both right?

Are there any policies the government should take that would actually help?  Or do we just need to let the cycle play out, even at the cost of another recession, or worse?