"If you believe your House or Senate seat is going to be jeopardized by cutting entitlements or boosting taxes what incentive do you have to compromise? It's both rational and opportunistic to be against compromise," said Cramer.
"In fact, if you're a Republican hell-bent on never raising taxes, why not go over the cliff, have taxes raised automatically, and then give in to President Obama by saying you actually cut taxes as you promised the electorate? For those career oriented Republicans, that's a win-win."
And that is why Cramer says it's time to prepare for the failure of the December talks and get ready for a December to January decline until the hardships become so clear that compromise on principles may be the only way to avoid a recession.
As a result, Cramer expects the market to decline approximately 10% - about the same drop that occurred before lawmakers could find common ground and pass TARP. Read More: Was TARP Worth It?
"That's what I am betting will happen again," he said.
Here's how Cramer thinks it all plays out.
"The first leg down in the S&P should come in the final weeks of the year when it's clear that we won't have a deal. You have to sell your stocks with the big gains because it makes too much sense not to. You can save a ton on taxes."
After that, "I think this market will get pounded every Thursday as jobless claims naturally spike because of the mandated layoffs, particularly in the military industrial complex where reports are rife that a million people will almost immediately lose their jobs."
Sounds bleak – and it may be.
Cramer thinks some of the best performing stocks of 2012 will take a hard hit as the scenario outlined above plays out.
For example, up 50% ytd, Home Depot may be a likely target for sellers. Also Cramer expects sharp declines in Sherwin-Williams, which is currently up 80% ytd and Whirlpool, which has rallied more than 110% this year.
"At the same time, I suspect we'll get another whack down in the higher yielding dividend stocks such as Verizon and AT&T. They could decline ten percent."
But -- just when it seems like all hope is lost - that's when Cramer thinks you need to get aggressive. Ultimately Cramer expects a compromise and when it's reached the market should bounce back.
At that time you'll want to own the stocks that bounce back first.
"And the stocks that bounce back first will be the stocks that were sold down the worst," he said.
What's the bottom line?
Cramer thinks it's growing ever more likely that lawmakers take the nation over the fiscal cliff – but should that happen, get a shopping list ready.
Click here to go to the video from Wednesday's broadcast.
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