3 pressure points that could force a fiscal cliff deal

The odds of reaching an agreement aren't great, but here's what it might take.

By Jim Cramer Nov 12, 2012 9:48AM

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Image Source Black JupiterimagesWhat will force the hands of Congress and the president to make a budget deal before taxes shoot up and spending slams down? What inputs do they need?


I see three pressure points.


The first is a precipitous decline in the stock market. We have two precedents for the market to matter: the TARP vote and the deal in Europe. After TARP initially failed, the market took a real hammering, and that was because sellers knew they had to get out before the banking system collapsed.

You have heard a series of banking CEOs say their institutions wouldn't have collapsed if TARP had failed to pass. That's nonsense. Short sellers controlled the market, and they could bring stocks down, which then caused ratings agencies to panic, which then stopped funding to banks and then brought collapses. The bank CEOs couldn't stop that trend. They should stop pretending they did. Congress swung into action only after the hideous sell-off.


There's no secret to the when the central bank got a deal to move along: when the stock markets collapsed and the bank stocks looked like they would be rolled.


So my simple take is a 1,000-2,000-point bone-crusher comes first and a deal later. Chances: 50/50.


The second? The beginning of a shoot up in employment claims as everyone from the biggest executives to the smallest of small-business men know it is time to fire. Why not? We rewarded executives who "saw it coming first" with higher stock prices, and "saw it coming" meant who fired the most the fastest. You will see that from the claims. I don't have to put odds on that. The game is already happening.

Third, in order to stop the fiscal cliff jump, CEOs who contributed to the Romney campaign and to opponents of the Democrats recognize they backed losers and actually ask the congresspeople they invested in to make a deal rather than have a recession that will kill profits, lower stock prices and maybe affect CEO compensation. This may not happen, because No. 2 says they can slash hiring and still do well personally and with their stocks, but there have to be some executives who say they are not going to continue to front losing, divisive leaders.


Of course, the Tea Party people are willing to crucify hiring upon a cross of 15% tax rates for hedge fund managers, perhaps the greatest bit of Grover Norquist-inspired insanity yet. But as a former hedge fund manager who paid ordinary income, I could see selfish hedge funds really funding financial Armageddon because they can get short and make up the lower tax rate that way.


Oh, come on, that's not cynical, that's good business. The prospects of business leaders actually helping to get a deal done has increased to 50% also simply because they are money men and backing losers turned out to be a really bad strategy.


So there are the players. That's the game plan. I don't like the odds, because issue two has already started and you can gift-wrap a 2013 recession come no deal by Christmas.


That means staying lean, investing with companies that don't have to rely on U.S. consumers, who will be hammered, and just waiting for the punishment from having Congress sink into partisan politics instead of rising above to get a deal done.


Jim Cramer's face


Jim Cramer is a co-founder of TheStreet and contributes daily market commentary to the financial news network's sites. Follow his trades for Action Alerts PLUS, which Cramer co-manages as a charitable trust.




More from TheStreet.com

Nov 12, 2012 11:18AM
Well the welfare mentality on wall street thinking that the tax payer will bailout them again is stupid. Short sells should not be allowed ! Wall street should not have margin buys at all ! They should be cash and carry only.. The Glass Steagal act should be put back in place ! The too big to fail mantra on banks should be broken up ! The FEDs should raise int rates to 1.5% at the fed window on wall street! Stop all the qe1, qe2 , qe3 BS NOW.. If wall street falls let the free market system rule the strong lives the weak die.. Thats the way wall street should be today .THATS CAPITALISM ..The Bush tax cuts expiring will only bring the rates to where they were ! They were to create jobs from the rich right? WELL a decade latter and guess what no jobs by the so called job creators ! If tax cuts work ? We would have unemployment at 2% TODAY.. THE FISCAL CLIFF NEEDS TO COME AND CONGRESS SHOULD not raise THE DEBT LIMIT! THAT WILL PUT THE BREAKS ON THE FEDS RUNNING THE PRINTING PRESSES FOR WALL STREETS FREE MONEY! And Congress out of control spending .And stop the devaluation of the US$ . Its time for wall street AND CONGRESS to live within its means like the rest of America. 16 trillion was good enough for 2012 ! It truly good enough for 2013.. Thats why they call it a debt LIMIT people ! Do not listen to the pundits on the news and wall street pukes ! They just hate the thought of using their money!!!! And living in a truly free market ! What we have today on wall street is socialized wall street looking for a government bailout at every turn! Thats and this the way they have ran is NOT CAPITALISM folks its pure socialism on wall street! READ YOUR CONSTITUTION PEOPLE ! CONGRESS IS THE ONLY POWER TO TAX AND SPEND . ITS IN THE US CONSTITUTION READ IT YOU PEOPLE... TAKE A CIVICS CLASS AND LEARN AMERICA... STOP BELIEVING THE B.S.FROM FOX NEWS AND ALL THE OTHER IDIOTS OUT THERE..
Nov 12, 2012 12:19PM

Raise taxes on everyone. For the rich and also for those paying NO taxes.  Combine that with a balanced budget amendment.  Not ten years from now,  next year 2013.

Until they agree to a balanced budget, why agree to raise any taxes because the SOB's will waste it on crap!

Nov 12, 2012 12:21PM

You could take all the rich folks money and run this government for a few months at the most. We have a huge spending problem.
Nov 12, 2012 11:36AM

There will be no fiscal cliff !     No more than there had been a government shut down.

There will only be a watered down version to delay any responsible action.

Nov 12, 2012 11:15AM
Fiscal cliff deal? What deal? Simply do what we have been doing all along to avoid accountability: kick the can down the road.
Nov 12, 2012 11:50AM
He's right on this:  Nothing will happen until things get worse, MUCH MUCH worse.  Don't look for any action then until 2013.
Nov 12, 2012 12:07PM
Nov 12, 2012 12:14PM
 Obama and the Senate has the GOP boxed into a corner with their extend the middle class tax cut bill. Gonna be a LOT of pissed off people if they fail to pass it and they will look like jerks
Nov 12, 2012 12:07PM
Time for a correction that should have happened long ago to this smoke and mirrors economy of it's own making. The world market only exists on Wall Street and in anything related to it and it only exists if we the people participate by buying it's products and services. Problem is I don't believe the people have the sands for what needs to take place so this will continue to plunder along until it finally does what it should have done. Fail!
Nov 12, 2012 12:01PM
 Go over the cliff.  Then craft separate tax cut bills, one for the Upper Class and one for Everybody Else Let Congress pass or fail them and be accountable to the voters in 2014
 SAME deal for Medicare and Defense, Separate budget bills , then vote on each
Nov 12, 2012 12:17PM
Obama already got a tax hike. It's called The "Affordable" Care Act.
Taxes the middle class - Just ask the court - Now he may get some "Loop Holes" cut if he wants a deal.

I think he would like to go back to the Clinton Tax rates anyway, death tax and all. Doesn't want a deal and will never put forward a budget.

Just what I think.
Nov 12, 2012 1:13PM

Did anyone hear what oblamos recovery plan is, other than more taxes for the rich and everybody else...?

Could be he will ask China for more loans, thus driving the United States deeper in debt...

watchya think...

Nov 12, 2012 2:43PM



Why should small businesses and high income individuals pay more, when the congressional democrats can't prove to the people that they can be responsible with our money. Hell no, absolutely not. That's a horrible deal! The people shouldn't stand for it.


Obama did not tell us he was going to take billions out of medicare to fund the ACA. What else is Obama not telling us that he has in store with our tax payer dollars?!?


i don't trust Obama one dang bit. He has already been too dishonest with too much sneaky business going on in the Whitehouse. No more policy by executive fiat. Pass a damn budget politician!

Nov 12, 2012 1:21PM

With the Speaker of the House and the President saying they are ready to compromise it sounded like there was hope, until the Speaker said to raise revenue without any tax hikes and the President said there must be tax hikes on the "rich".  Each poisoned the process, dooming it.  Hope everyone has a parachute, it is a very tall cliff and we are going over it.

Nov 12, 2012 1:01PM
Maybe some (enough) voters didn't like the idea of getting rid of medicare as it now is for those under 55. I thought this was a big mistake, but they went with it and its backer Ryan whole hog. Even Donald Trump warned against it. Try getting and paying for health insurance when you're 65 plus...or 80. 
Nov 12, 2012 12:03PM

Poor Cramer can't hustle the stocks when they aren't being manipulated by the recipients of our money to prop up the phony market.  After all, what would he do without a positive market?


Nov 12, 2012 11:29AM
Here's a new flash Cramer! The American public is sick of this partisan crap from ALL of the politicians (that's right.... REPUBS & DEMS). While we need something new and credible, that was the whole thing behind the elections, not more of the same old crap. And Americans for the most part are going to take these Roves, Tea Partiers, and all of the obstructionists out of the picture by whatever means necessary. And NO, we are not going to keep unhumanizing our gay citizens, plunder abortion clinics, or peep through husband & wives bedrooms to see if they are using birth control. We will simply dismiss these a.. holes if they do not get the job done. We don't care how much billionaires like it or not. We are over it. Since they can't govern themselves, the hard working American people will do it, because most Americans are NOT the piece of trash that Wall Street, billionaires, and politicians think, assume and have labeled them. These dipsticks can go to He__!@
Nov 12, 2012 11:40AM
To the (TBTF) Criminal Banking Cartel ! This should be your most profitable season of all time ! Enjoy your money and profits ! Continue to SCREW THE AMERICAN PEOPLE and we might surprise you with a Holiday gift !
Nov 12, 2012 11:46AM
I am surprised I have not heard anyone say that we should raise taxes on each family making less than $250k and not tax those making more.
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