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

TheStreet.com LOGO

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 2:21PM
Yay, now I'm the problem. I'm sure Bush and the video maker will be happy to know that.
Nov 12, 2012 2:20PM
To those of you still whining about the debt limit, tell me please, did you "raise your debt limit" after becoming an adult? you must have, if you bought a new car. that's called a loan, and i goddamguarantee you didn't have a $20,000+ limit when you were 10 years old. How about when you got a job and stabilized your income? did you "raise your debt limit" to buy a house? Unless you're mitt robme, you probably borrowed that money, and that means you... "RAISED YOUR DEBT LIMIT" accordingly. I goddamguarantee you didn't have a $200,000 "debt limit" when you were 16 or 18, when you bought that first new car. Do you understand the whole "debt limit" discussion now? do you?
Nov 12, 2012 2:18PM

 When Boehner said " fall in line" to the GOP Congressmen was he talking about Ryan and Cantor or  Moderates considering rejecting Nordquist's pledge. I'll say the latter
Nov 12, 2012 2:18PM
yeah, and everyone should study hard, get a skill or a trade, and get a job.......then you wouldn't have to worry about who's getting bailed out, the individual or the corp......
Nov 12, 2012 2:15PM
Your taxes WILL  go up when the BUSH tax cuts expire.

Nov 12, 2012 2:02PM
peg mackey said the U.S. will overtake Saudi as top oil producer in 2,017.  That is the biggest bunch of Crap I have ever heard.  I have been in the oil business   35 years  and that is just a big  LIE.  Where do they get that crap from?  Just dream it up
Nov 12, 2012 1:59PM

 Some Dweeb just HAD to put an expiration date on the Bush tax cuts to make it more palatable to the fools who had no idea what was going to go down in 2008.  Trickle Down Economics. YAY! We won't NEED the cuts by 2010 and they can safely expire. No need to worry about silly deficits said Cheney the Fool-- surpassed ONLY by Rummy the Dummy and his Iraq War assertions---- Reagan proved we will GROW our way out of them!--- Yeah right ya Chump
Nov 12, 2012 1:54PM

Until Republicans face their demons, nothing will change. Like drug addicts they wander around blaming everybody else for their degradation. They say we have a spending problem when clearly they are the only users in town.

2002 total Federal spending $2.011 trillion

2009 total Federal spending $3.518 trillion, a $1.507 trillion dollar increase by Republicans

2012 total year end projection $3.627 trillion, a $109 billion increase, almost 15 times less than Republicans, the only way to cut spending is keep Republicans out of office.

This has been a public service message.

Nov 12, 2012 1:51PM

 Tax cut expirations are not a tax hike. It's merely nature taking its course due to gridlock. It's ALL about semantics
Nov 12, 2012 1:47PM

 Nordquist's political extortion of GOP Congressmen is akin to McCarthy's extortion of Congressmen during the Red Scare-- And he is about to take just as big a fall from grace
Nov 12, 2012 1:47PM

If you didn't like the ideas in my last post, we could always take our 'one time' dividends pay out now to avoid the tax increase, and invest them offshore in Jamaica's new casino ventures- they just approved them; So its either you work with us to help maintain America's strong economy with multi pronged approach by reducing the entitlements & taxes or we'll go - you know-



Be sure to tell your congressperson that !!

Nov 12, 2012 1:42PM

 In reality the Tea Party was a pseudo- Libertarian coup of the GOP lead by " mavericks" like Palin who took great issue with their Old Guard. Did it work? The outcome is still somewhat in doubt. Ryan or Christie who will it be next? The GOP has a BIG choice to make. Already the Tea Party, Rush and Fox News  have been publicly repudiated by Moderates in their ranks like Steve Schmitt, Michael Steele and David Brooks
Nov 12, 2012 1:40PM

To all who receive SSI & SSDI : ( regardless of disability or developmental disability)


I & my peers will be pushing for you to enter the work force in either self employment or wage employment. Provisions already exist in the SSA for you to do this without jeopardizing your cash benefits until you reach the 'break even' point in which you no longer need them.


You voted for Obama, now it's time to do your part and go to work for the America you voted for !

Nov 12, 2012 1:38PM

Last election , the same crap, different words... oh the government is going to shut down , no budget deal, blah blah blah..


Someone tell our PAID EMPLOYEES< CONGRESS AND SENATE, that enough is enough. Do your job or we will recall you, one by one , and replace you with people that have a unified , strong and health America in their heart and mind.  With Actions that prove it.

Nov 12, 2012 1:31PM

 Here's a clue GOP. Get rid of your Bible Thumping Akin types. The Liberal Women just put a stake in that dinosaur's heart for good
 And start grovelling for Hispanic votes. Maybe you should have made Rubio the VP choice instead of Ultra Capitalist Ryan, huh
 OR you could join the White Supremacist Skinheads as a sour grapes gesture
Nov 12, 2012 1:26PM
I doubt very much if Abraham Lincoln would vote for today's Republican Party ......maybe even Reagan wouldn't either .......
Nov 12, 2012 1:24PM
Here we go again with the Wall Street hubris and greed. It's all about "them" and screw the rest of us and that's what got us here in the first place.  Here's what needs to happen. Obama publicly offers the Republicans, toilet paperers too, a deal with moderated spending cuts for defense and less tax increases for the middle class but the repeal of tax cuts for capital gains, dividends and over $250k.  Now the Republicans can play bluff and will feel the disdain of the American public as the fiscal cliff becomes real. The stage will then be set for a real budget bill like Simpson-Bowles. This will be good for the country and Wall Street can take their medicine with everybody else.
Nov 12, 2012 1:22PM

Craig, We don't have a spending problem you do, incompetent fiscal policies from the last three Republican Presidents have lead us to the Greek Shores.

GDP to debt increases by Presidents,

              Reagan + 21% increase               Carter - 3% decrease

              Bush Sr. +14% increase               Clinton- 10% decrease

              Bush Jr. + 28% increase               Obama + 16% increase


Total Republican increase 63%     Total Democrat increase 3%

Your the problem Craig, because you just don't get it, the road to Greece runs through the Republicans.

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 1:18PM
 I wonder if Petraeus is a Republican like Lance Armstrong. Got the same character despite the public facade of being great dudes

 I love the title of his mistress's book : All In. ---I bet he was!
Please help us to maintain a healthy and vibrant community by reporting any illegal or inappropriate behavior. If you believe a message violates theCode of Conductplease use this form to notify the moderators. They will investigate your report and take appropriate action. If necessary, they report all illegal activity to the proper authorities.
100 character limit
Are you sure you want to delete this comment?


Copyright © 2014 Microsoft. All rights reserved.

Fundamental company data and historical chart data provided by Morningstar Inc. Real-time index quotes and delayed quotes supplied by Morningstar Inc. Quotes delayed by up to 15 minutes, except where indicated otherwise. Fund summary, fund performance and dividend data provided by Morningstar Inc. Analyst recommendations provided by Zacks Investment Research. StockScouter data provided by Verus Analytics. IPO data provided by Hoover's Inc. Index membership data provided by Morningstar Inc.


StockScouter rates stocks from 1 to 10, with 10 being the best, using a system of advanced mathematics to determine a stock's expected risk and return. Ratings are displayed on a bell curve, meaning there will be fewer ratings of 1 and 10 and far more of 4 through 7.

116 rated 1
279 rated 2
443 rated 3
626 rated 4
667 rated 5
721 rated 6
630 rated 7
472 rated 8
292 rated 9
131 rated 10

Top Picks




Top Stocks provides analysis about the most noteworthy stocks in the market each day, combining some of the best content from around the MSN Money site and the rest of the Web.

Contributors include professional investors and journalists affiliated with MSN Money.

Follow us on Twitter @topstocksmsn.