(Click for video linked to a searchable transcript of this Mad Money segment)
Some say a meteor strike is more likely than a default; that is, chances are very low. Who wants to tell the dinosaurs?
Yes, we're poking fun at a serious situation, simply to make a point. That is, with each passing day that there's no resolution to the debt debate, the odds increase that something terrible may happen.
"I now believe there's a 20% chance of default," said Cramer.
And as the calendar careens toward October 17th, the day Treasury Secretary Jack Lews says the nation will run out of money, the chances of something terrible happening, grow and grow.
Because Cramer believes a smart investor is an informed investor, he thinks it's prudent to examine what might happen in the event of a default, today. Right now. If only to be prepared.
Here's the scenario:
"While the October 17th deadline mentioned by Treasury Secretary Lew isn't hard and fast, it is the day when the Treasury can no longer guarantee that all the nation's bills would be paid," Cramer explained.
"At that point it's possible that all payments will get a haircut or that that some will be delayed, or that the Treasury must pick and choose what to pay and what to ignore," Cramer added citing research from Mark Patterson, a senior fellow at the Center for American Progress and former chief of staff of the Department of Treasury.
"As the month goes on with no new debt issued, any stopgap measure would fail and the government would become flat out broke. At that point the most likely outcome is that they would stop paying pretty much everyone."
Citing other research from Michael Cembalest of JPMorgan, Cramer said the nation might then experience a liquidity event that would force job cuts and tighten credit, particularly for small and medium sized businesses. Also, "You could see a crimping in retail sales and auto sales, too," Cramer added.
Events would unwind quickly, within two to six months the nation would be thrust back into recession.
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Of course it should be noted that Cramer still thinks there's an 80% chance of resolution. That's still pretty high. Nothing is a foregone conclusion. And lawmakers must know what's at stake. Surely they know. They just have to know – they do know, don't they?
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