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Cramer: Has the Government Just Derailed the Recovery?

Are $85 billion in spending cuts just too much for our fragile economy to handle?

That was the most pressing question on Wall Street Monday as investors attempted to understand where the cuts would hit and what kind of ripple the new austerity may generate.

By all accounts the impact is extremely difficult to anticipate.

Some say the economy simply can't withstand the resulting layoffs and hardships that the cuts will trigger.


Jim Cramer, however, is more optImistIc.

Of course, like so many other Americans he's outraged that Democrats and Republicans appear to have put partisan politics ahead of all else.

"The sequester seems uniquely designed to throw as many civilian workers out of jobs and on to unemployment roles as possible," he said. "When it comes to putting people to work and encouraging capital formation I can't believe what a travesty government has become."

Although Cramer concedes that events will likely create a drag on the economy, he's also thinks the economy should be able to withstand the blow.


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The Mad Money host is convinced that there's another catalyst at play – one which he thinks trumps event the nasty turn of events in Washington.

It's the wealth effect.

That is, a combination of higher home values and higher stock prices are making people feel better - about everything.

"If you own a home, you're probably feeling pretty good because all over the country houses are going up in value. If you're one of the 90 million Americans who owns stocks in one form or another, your portfolio is likely worth a heck of a lot more than it was even six months ago," Cramer said.

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If Cramer is right, it would seem reasonable to conclude that as long as the wealth effect remains intact, the economy should be able to weather the storm and transcend the woes of Washington.

Of course, if lawmakers could achieve compromise – Cramer thinks the nation could embark on a new age of American greatness. "I marvel at what kind of growth we could have if Washington helped. But I am realistic: it is not going to happen."

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