Cramer: Debt ceiling is one of Washington's biggest market threats

  • The upcoming battle over the debt ceiling could have a big impact on the market, CNBC's Jim Cramer says.
  • "We really hate any debt ceiling issue which makes it so that the government would even seem for a second that it would default," the "Mad Money" host says.

Jim Cramer on Mad Money
Scott Mlyn | CNBC
Jim Cramer on Mad Money

The upcoming battle over the debt ceiling could have a big impact on the market, CNBC's Jim Cramer said on Tuesday.

"We really hate any debt ceiling issue which makes it so that the government would even seem for a second that it would default," the "Mad Money" host said in an interview with MSNBC's Chuck Todd.

Failing to raise the borrowing limit ultimately could cause the U.S. to default on debt payments. That would send a ripple effect through the economy, causing government bond yields to surge. It would also result in soaring borrowing costs when government debt loses its sterling credit rating.

Current estimates are that the government can continue to shuffle money until sometime in March before losing the ability to operate.

First on the agenda, however, is funding the government and the possibility of a shutdown.

On Tuesday, President Donald Trump said he'd "love" to see a government shutdown if lawmakers can't strike an immigration deal. The government's funding authority would lapse for the second time in two months if Congress cannot pass a spending bill by the end of Thursday.

However, Cramer isn't as concerned about that. He said previous declines on shutdowns were a "buying opportunity."

While news out of the nation's capital has both helped and hurt stocks, it is part of the reason the market has been down lately — including a wage increase number that Cramer called "too hot" and led to concerns about inflation.

However, the most recent market turmoil can be blamed on an obscure security designed to be a bet on a calm market, Cramer said earlier Tuesday on CNBC.

He said the VelocityShares Daily Inverse VIX Short-Term exchange-traded note (XIV) caused an influx of selling in recent days. He characterized the ETN as a "phony product" and "toxic cigarette for the market."

After a massive two-day sell-off, on Tuesday the Dow Jones industrial average traded in a range of 1,167.49 points. It swung as low as 567 points, rose as much as 600.48 points and ultimately closed 569 points higher.

—CNBC's Jeff Cox, Jacob Pramuk and Berkeley Lovelace contributed to this report.