Cramer: Tempted to Ignore the Fiscal Cliff?
Tired of all the fiscal cliff rhetoric and commentary? So's Jim Cramer.
The Mad Money host would much prefer to talk about the latest earnings or potential M&A. He'd much prefer to talk about the Army vs Navy game.
But he can't. He'd be doing you a disservice he didn't draw your attention to this enormous market catalyst each and every day.
Therefore, with only three weeks left in the year, "I have no choice but to handicap the possibilities of a deal, any deal, if I'm going to help you try to make money," said Cramer.
Following are Cramer's scenarios.
Scenario 1: Kick the Can
Of all the scenarios, this one could appeal to the current 'do nothing' philosophy currently awash in the nation's capital
"What's going to happen if they kick the can? The only thing is that the ratings agencies will cut their ratings of the U.S. debt," Cramer explained. "But when our debt was downgraded in the summer of last year, Treasurys actually went up in price, not down. So why not do nothing?"
Why doesn't the President say, "we are going to keep tax rates here until things get better and we aren't going to cut entitlements because we know if we don't raise taxes the Republicans won't have to violate their no tax pledge and we'll do just fine."
If lawmakers kick the can, Cramer thinks the markets will go much higher and nobody will care, for now.
However – he also says it's the least likely scenario. "It's probably not going to happen."
Scenario 2: Sequestration
Sequestration refers to the massive tax increases and broad spending cuts currently scheduled to take effect, if we go over the cliff. "They are onerous," said Cramer.
The question becomes how long sequestration remains in effect.
A wide range of economists and even Ben Bernanke all believe if this happens – time will be of the essence.
According to a report from the American Enterprise Institute, within 6 months real economic output would contract by half a percent of GDP, and negative growth of 2.9 percent would officially send the economy into recession.
This scenario is terrible for markets – especially if there's no subsequent compromise.
Scenario 3: Compromise
Cramer is still hoping Congress and the President can figure out a more reasonable way to spend less and take in more money over time to get the budget deficit under control.
"Democrats, give in a little on the taxes for the rich and show your hand on entitlement cuts," urged Cramer.
"Republicans, relent on this endless no tax pledge that will prevent a deal from happening and actually outline your spending cuts."
A deal – any deal – would likely send markets higher. If there's one thing Wall Street hates its uncertainty and even a rather austere deal would at least generate some clarity.
The bottom line?
As long as Washington remains stuck – Wall Street will remain stuck too.
"The longer we delay a deal or can't reach a deal at all, the worse it's going to be for the consumer and for the corporations and for the shareholders - so what the heck am I supposed to do? I have no choice but to stay on this story," sais Cramer.
Read More: Cramer's Plays on Housing Rebound
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