The U.S. government seemed to be the only thing investors have any faith in Friday, as every asset class outside of Treasury bonds and the greenback took a nose dive.

Three elements are causing a broad selloff and exacerbating one another's effect: A psychology of panic and fear, a weak economic outlook across the globe, and technical factors like the forced liquidation of hedge funds from margin calls. Scared investors started fleeing stocks en masse in September, and as prices hit certain benchmarks, there was more forced selling.

Daily announcements of weak earnings and new predictions of a global recession only lead to more selling, whether in stocks, commodities or other holdings that once seemed like refuge from the storm.

"Gold was safe haven mostly when people were trying to protect themselves from inflation," says Christian Menegatti, lead analyst at economic research firm RGE Monitor. "But I don't see any inflationary pressures around the corner -- in fact, I see the opposite, deflationary pressures."

Indeed, Nouriel Roubini, a leading economist and chairman of RGE, has predicted that the U.S. will suffer the worst recession in four decades. Roubini told a conference of hedge-fund managers on Thursday that there will continue to be a "massive dumping of assets" as hundreds of additional hedge funds fail, according to Bloomberg.

Third-quarter earnings reports have come in at or above expectations for several major names, including Microsoft ( MSFT) and Google ( GOOG). But the outlook commentary, littered with uncertainty, failed to reassure investors about future potential.

While weakness within the banking industry came as no surprise, reports only stoked fears of a continuation of stress in the financial sector. That stress has eliminated or necessitated the bailout or fire sale of several top firms this year, including Bear Stearns, Lehman Brothers, AIG ( AIG), Fannie Mae ( FNM), Freddie Mac ( FRE), Merrill Lynch ( MER), Washington Mutual and Wachovia ( WB).

Other reports with unexpected downside, like Yahoo's ( YHOO) 64% profit plunge and major job cuts, or word that Goldman Sachs ( GS) would slash 10% of its workforce, added fuel in the days leading up to the end-of-week conflagration.

The list of calamities Friday is long. The Dow Jones Industrial Average fell as much as 500 points, before closing down 215. The dollar soared to multi-year highs against European and emerging-market currencies, sending commodity prices into a freefall. Oil fell as much as $5.19 per barrel to $62.85 at one point on the New York Mercantile Exchange. Through all the tumult, Treasury bonds rallied, with the yield on 30-year notes falling the lowest level since ordinary sales began in 1977. Prices move in the opposite direction of yields.

The situation seemed more dire early in the day, as futures on the S&P, Dow and Nasdaq were all halted in premarket trading after reaching the maximum decline allowed, following sharp declines in overseas markets. But the crash never came to fruition in the regular session, as stocks and commodities recouped some or all of their losses as the day went on, and the flight to Treasuries eased up a bit. For instance, gold was poised to post its biggest weekly loss, at one point dropping to $681 per ounce, before gaining more than 3% in a late-day rally.

The unprecedented volatility of late has placed some values out of whack with fundamentals and left some investors befuddled.

"Part of this frustration is that there's not a single event that we can point to that caused this global selloff -- first in Asia, then in Europe and now in the U.S.," says Hank Smith, chief investment officer with Haverford Investments. "If it's forced liquidation, we don't know how much leverage hedge funds have and we don't know what stage we are in. Are we almost near the end of this hedge-fund forced liquidation?"

Smith notes that the bear market has taken over many large-cap, "quality" stocks like Johnson & Johnson ( JNJ) and Procter & Gamble ( PG), which were at or near 52-week highs when it began. He says declines are only exacerbated by the fear that pervades the market, as other investors sit on the sidelines and wait until things begin to turn around.

"The bear market took over everything -- nothing has escaped it," says Smith. "Great big names are just getting tomahawked by 20%, 30% in just a few trading days. It's unbelievable. And that cycles back to the fear."

Gary Hager, president and founder of Integrated Wealth Management, believes that the volatility will last through early November, then start to dissipate. Once that happens, he predicts, investors will jump out of the trenches and dive back into the market, though the economic recession will last far longer, since stock movements tend to precede activity in the real economy.

"There are tons of people sitting on the sidelines watching a car wreck: 'Should I stop? Should I drive? Should I call somebody?,'" says Hager. "Our position is, if you're in the market, you've got to stay -- bonds are certainly safe, but where are you getting any return?"

"And if you're not in the market," he continues, "you have to look for opportunities. There are tremendous, tremendous buys."