Can demand for credit derivatives really lead to economic decline?

If we read the attempted implications of "Bond Market Vigilantes Sink Stocks" right, Mr. Mirhaydari claims the surge in the CDS market is threatening to raise interest rates on sovereign debt, which will force governments to cut spending and raise taxes to counter the cost of debt, which leads to a double dip recession, which leads to a falling stock market.

It makes perfect sense except for the part about politicians giving any hoot at all about the cost of their debt. Europe certainly has rules about limited deficit spending, but does anyone else that matters to global growth have such constraints?

Still, if the rush for CDS instruments is really the impetus behind recent market movements, that money flow will eventually unwind as the speculators take their profits and look for another ride to get excited about. Maybe the only real connection that makes sense is that institutions that have the clout to speculate with CDS, bonds, equities, and commodities all over the world have found a nice little emotional roller coaster to take out for a spin, after which they’ll whipsaw the markets and ride something else up to hysterical levels when they are ready to take profit out of the CDS markets.

If Mirhaydari is correct we'll see people talking about S&P 500 at 600 within a few months. If our secondary supposition is correct, we should see a strong rebound in stocks and commodities before summer. According to Jim Jubak's analysis of leading and lagging indicators, the latter appears more plausible.