We are not Europe.
“Mad Money” host Jim Cramer loosely paraphrased Michael Jackson on Wednesday, saying, “We are not the world. We are not their children. And while we are not the ones who can make a brighter stock market, we are a heck of a lot better off than they are.”
Cramer drew sharp distinctions between the United States and the European Union, emphasizing why he remained bullish on America’s future, especially in light of destruction in the market. Wednesday the Dow plunged 389 points, the S&P took a 3.67 percent nosedive, and the NASDAQ fell 3.88 percent. (Update: The European Central Bank on Thursday aggressively bought Italian bonds with short maturities.)
“We function. They don't. We actually have a workable currency. They don't. We have vast natural resources. They don't,” he said. “Our large banks will by and large survive and even thrive. Theirs won't and are in real danger here.”
Cramer referenced his declaration a day ago that the stock market just doesn't make sense, that the markets should be falling apart, not rallying, on Italian chaos; that the euro should be sinking, not rising, because of Italy's inability to pay its bills.
Wednesday was totally different because Italy, one of the world's largest economies and an even bigger borrower, is most likely going to come up short paying its government's bills. The world's bond buyers jacked up the interest rate they are demanding Italy pay them for the privilege of supporting their bloated welfare state, and the price has gotten too high for the government to pay the bill by itself.
Italy either has to get help immediately from its fellow Europeans and the International Monetary Fund, or it defaults.
The latter option is so close to economic suicide that the offer of help, as unpalatable as it might be, is the only realistic way to go unless we want the global economy to stop in its tracks, Cramer said. Whatever the Republican presidential candidates might say, an Italy that fails to pay its bills is an Italy that can set off a chain reaction which will cause terrible shockwaves around the globe, including here in the United States. The world's banking system can shut down quickly and, as Hemingway said on bankrupcty, gradually then suddenly.
So, the market acted rationally Wednesday, even if it was harsh.
U.S. vs. Italy
There are several important factors that differentiates the United States from Italy, and why Cramer remains a booster of the good ol' U.S. of A.
1. They are stuck with the euro. Cramer said it's obvious the euro is at the root of Europe's problems here, as well as why he's not advocating 100 percent cash here. The euro is alive and sick, but because of the monetary interrelation, the European Monetary Union is going to have to print trillions of Euros to get out of this one.
2. We have the almighty dollar. Criticize the greenback all you want, but it hasn't allowed any particular state, even the golden one, to bring us down. Unlike Europe, there's no doubt the union will be preserved. It isn't 1861.
3. We have abundant natural resources, including enough natural gas to make America energy self-sufficient if we used it to fuel surface vehicles. No way Europe can ever do that.
4. Our banks are loaded with capital. Financials at U.S. banks will prevail even if their stocks remain awful. Regional banks are actually starting to make a comeback because they have little mortgage bond exposure and nothing to do with Europe.
5. We have a functioning central bank. The Federal Reserve is a hated institution for many of the Republicans presidential candidates, but it works. Plus, it isn't torn asunder by the cacophony of 17 disparate nations. It's run by one guy.
6. U.S. companies are strong. "Their balance sheets are the strongest I have ever seen them in my 31 years of investing," Cramer said, "and in times of stress like this, the balance sheet is what matters." Even General Motors bankrupt not that long ago, has oodles of cash now and can withstand anything the Italians, the Spanish or just about anyone else can throw at them.
7. Our government is capable of acting when it must. In late 2008 and 2009, Washington could could still summon the energy to save the financial system, even after General Motors, Fannie Mae and Freddie Mac, AIG, Lehman Brothers, Bear Stearns and countless other smaller concerns went belly-up. Until MF Global , brought down by European bank debt, can you recall a major company that's gone belly-up since we met our figurative financial Waterloo? No, because we took action. Europe, on the other hand, seems paralyzed as their actual Waterloo, the sequel, certainly worse financially than the original, now seems impossible to avoid.
The list could go on.
"We are not their children," Cramer said. "We're saving our own economic lives, which is why, my bottom line tonight is I refuse to get panicked, depressed or downhearted about the good old USA."
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