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.
What 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 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.
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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!
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.
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.
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...
NO TAX HIKES UNTIL THE SENATE APPROVES AND PASSES A FED BUDGET BILL INTO LAW!!!!
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!
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.
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?
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