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Cramer: Sequester 'Scare Tactics' Are Overblown

In a market where the sequestration looms, gas prices are on the rise and the Federal Reserve signals a potential slowing of asset purchases, investors are increasingly worried about their portfolios. CNBC's Jim Cramer said on "Squawk on the Street" that some of these worries are overblown.

"You feel that the switch has flipped and the things that were going well now are suddenly going badly. I want to caution that the [Fed] minutes were a month old. Remember that the Fed sees what we see," Cramer said.

"If you're the Fed, this is one of those months where you don't take your foot off the pedal," he said. "The news flow changed."

With automatic budget cuts likely to start a week from Friday because of political gridlock in Washington, talk about the effects of the federal budget "sequestrations" is growing.

"Every time you pick up a newspaper, it's going to take your breath away," Cramer said. "The scare tactics are going to be in and you have to steal yourself if you're going to stay long here."

"I am less worried about the spending cuts than I was about the fiscal cliff. If we did get a total breakdown, then you had much more to worry about. Here, there's a undercurrent in this country that the government spends too much," he said. "This isn't the way to cut government spending, but people want government spending cut."

"The fiscal cliff didn't develop exactly how we thought. I keep thinking about all the capital gains, all the dividends that were accelerated because dividend tax rates were supposed to go up," he said, pointing out that these fears were largely overblown. "I just don't want to go overboard with what could happen."

"The scare stories about the military makes you feel like we're putting our defense fields down, it's probably not going to be like that," he said.

(Read More: Obama Warns Sequester Will Cause Job Losses)

— By CNBC's Paul Toscano. Follow him on Twitter and get the latest stories from "Squawk on the Street" @ToscanoPaul

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