Cramer Says a Default Could Cause a 10% Crash in the Market

[Toro]

… The issue now is that there are "different" defaults. The first kind of default, which isn't a real default, just a technical one, is that certain bills do not get paid. I think this has become a likely scenario now, growing 5% to 10% more likely every 72 hours that we draw close to the Aug. 2 deadline. Let's call it 50-50 for now. The consequence? A 2% to 4% decline in the S&P 500 across the board …

There is a second form of default, though, that isn't innocent and will lead to a bigger decline to the market, one that I shudder to think about. Let's call it the nuclear option. That's the one where the nation doesn't pay its bills. That's right, we don't pay interest or principal on the bonds. If we don't pay for one day, I don't think it can be contained by just 4%. We don't pay for three days, and I think the S&P can go down as much as 10%.

(A debt downgrade either way is almost a given, and that's part of the 2%-4% decline scenario.)

Why did this come about? What has changed? Speaker Boehner has lost control of his party. The deciding faction is the Tea Party faction, and they can be considered, for lack of a more diplomatic term, anarchists in this debate. They actually can be considered pro-default as a wake-up call.

The issue there is that the wake-up call will be felt around the world, and while we will have something that stops short of Lehman Brothers, we cannot afford to be complacent about this. I am giving the chance of this happening, and it will happen on Aug. 15 apparently, only 10%-20%. …

http://www.thestreet.com/p/_jcblog/rmoney/jimcramerblog/11200260.html

 

[waltky]

Senate's plan gets the nod...

Analysts: Senate plan saves $2.2 trillion
27 July`11 WASHINGTON (AP) — Six days away from a potentially calamitous government default, House Republicans on Wednesday appeared to be slowly coalescing around a plan by House Speaker John Boehner to avert the debt crisis — a plan Boehner was still retooling to increase its complement of spending cuts. But Senate Democrats insisted the short-term solution Republicans were crafting would leave the economy on shaky footing.

Each side claimed the moral high ground as a new day of jockeying over to how to end the debt crisis began. And budget analysts suggested both sides had been over-promising how much in spending cuts their rival plans would deliver. Boehner, R-Ohio, set out to rework his plan after nonpartisan analysts from the Congressional Budget Office said it would cut spending less than advertised — about $850 billion over 10 years rather than the $1.2 trillion initially promised. GOP leaders planned a House vote Thursday on the reworked plan.

"We're moving in his direction in a big way today," Rep. Mike Rogers, R-Mich., said of Boehner's plan. Rogers and others cited changes being made in the bill to make sure spending cuts exceed added borrowing authority, and the fact that the House will soon vote on a balanced budget plan. Senate Republican Leader Mitch McConnell said only Boehner's plan would resolve the crisis "in a way that will allow us to avoid default without raising taxes and to cut spending budget gimmicks."

A rival proposal offered by Senate Majority Leader Harry Reid, D-Nev., would deliver savings of a little more than $2 trillion, a half-trillion less than promised but still more than under Boehner's plan, budget analysts reported. Reid said Boehner's original plan was so weak that it "didn't even have the support of Republicans in his own chamber."

"A short-term solution is not an adequate solution for our economy," Reid said. "It's not Democrats who have asked for a long-term solution. It's the economy. The economy has demanded it." House Democrats, for their part, said Obama should invoke a little-known constitutional provision to prevent the nation from going into default if Congress fails to come up with a plan to raise the debt ceiling.

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[william the wie]

The senate bill is so crappy it is not expected to pass the senate. By the way what's the big deal? everybody with half a brain is hedged already.

 

[Trajan]

… The issue now is that there are "different" defaults. The first kind of default, which isn't a real default, just a technical one, is that certain bills do not get paid. I think this has become a likely scenario now, growing 5% to 10% more likely every 72 hours that we draw close to the Aug. 2 deadline. Let's call it 50-50 for now. The consequence? A 2% to 4% decline in the S&P 500 across the board …

There is a second form of default, though, that isn't innocent and will lead to a bigger decline to the market, one that I shudder to think about. Let's call it the nuclear option. That's the one where the nation doesn't pay its bills. That's right, we don't pay interest or principal on the bonds. If we don't pay for one day, I don't think it can be contained by just 4%. We don't pay for three days, and I think the S&P can go down as much as 10%.

(A debt downgrade either way is almost a given, and that's part of the 2%-4% decline scenario.)

Why did this come about? What has changed? Speaker Boehner has lost control of his party. The deciding faction is the Tea Party faction, and they can be considered, for lack of a more diplomatic term, anarchists in this debate. They actually can be considered pro-default as a wake-up call.

The issue there is that the wake-up call will be felt around the world, and while we will have something that stops short of Lehman Brothers, we cannot afford to be complacent about this. I am giving the chance of this happening, and it will happen on Aug. 15 apparently, only 10%-20%. …

http://www.thestreet.com/p/_jcblog/rmoney/jimcramerblog/11200260.html

I have not taken him seriously for a while now.


and as we have seen, Bernbank is out buying toner right now, QE3 is in the wings.

 

[Mad Scientist]

T.E.A Partiers are far from being anarchists, in fact we're the exact opposite, we want laws ENFORCED! And isn't this Cramer guy the one that was on Jon Stewart oppologizing for something?

 

[Zander]

Fear mongering Sells!!

 

[Baruch Menachem]

I guess he is the expert

 

[DavidS]

… The issue now is that there are "different" defaults. The first kind of default, which isn't a real default, just a technical one, is that certain bills do not get paid. I think this has become a likely scenario now, growing 5% to 10% more likely every 72 hours that we draw close to the Aug. 2 deadline. Let's call it 50-50 for now. The consequence? A 2% to 4% decline in the S&P 500 across the board …

There is a second form of default, though, that isn't innocent and will lead to a bigger decline to the market, one that I shudder to think about. Let's call it the nuclear option. That's the one where the nation doesn't pay its bills. That's right, we don't pay interest or principal on the bonds. If we don't pay for one day, I don't think it can be contained by just 4%. We don't pay for three days, and I think the S&P can go down as much as 10%.

(A debt downgrade either way is almost a given, and that's part of the 2%-4% decline scenario.)

Why did this come about? What has changed? Speaker Boehner has lost control of his party. The deciding faction is the Tea Party faction, and they can be considered, for lack of a more diplomatic term, anarchists in this debate. They actually can be considered pro-default as a wake-up call.

The issue there is that the wake-up call will be felt around the world, and while we will have something that stops short of Lehman Brothers, we cannot afford to be complacent about this. I am giving the chance of this happening, and it will happen on Aug. 15 apparently, only 10%-20%. …

http://www.thestreet.com/p/_jcblog/rmoney/jimcramerblog/11200260.html

If Boehner's bill does not pass the House tomorrow, this country is in deep shit.

10-20% is a conservative estimate.

 

[uscitizen]

A 10% "crash" would just be an adjustment back towards reality.

 

[uscitizen]

T.E.A Partiers are far from being anarchists, in fact we're the exact opposite, we want laws ENFORCED! And isn't this Cramer guy the one that was on Jon Stewart oppologizing for something?

Yeah right! They only want the laws they like to be enforced. Just like most other folks.

They want all the EPA laws enforced?

 

[DavidS]

T.E.A Partiers are far from being anarchists, in fact we're the exact opposite, we want laws ENFORCED! And isn't this Cramer guy the one that was on Jon Stewart oppologizing for something?

Yeah right! They only want the laws they like to be enforced. Just like most other folks.

They want all the EPA laws enforced?

TEA stands for taxed enough already. Stop posting bullshit. All of the TEA Parties are protests against high taxes. You're all a bunch of fucking morons. Taxes are the lowest they've been since Reagan - in fact lower because the rich pay less taxes than the middle class!

 

[shintao]

… The issue now is that there are "different" defaults. The first kind of default, which isn't a real default, just a technical one, is that certain bills do not get paid. I think this has become a likely scenario now, growing 5% to 10% more likely every 72 hours that we draw close to the Aug. 2 deadline. Let's call it 50-50 for now. The consequence? A 2% to 4% decline in the S&P 500 across the board …

There is a second form of default, though, that isn't innocent and will lead to a bigger decline to the market, one that I shudder to think about. Let's call it the nuclear option. That's the one where the nation doesn't pay its bills. That's right, we don't pay interest or principal on the bonds. If we don't pay for one day, I don't think it can be contained by just 4%. We don't pay for three days, and I think the S&P can go down as much as 10%.

(A debt downgrade either way is almost a given, and that's part of the 2%-4% decline scenario.)

Why did this come about? What has changed? Speaker Boehner has lost control of his party. The deciding faction is the Tea Party faction, and they can be considered, for lack of a more diplomatic term, anarchists in this debate. They actually can be considered pro-default as a wake-up call.

The issue there is that the wake-up call will be felt around the world, and while we will have something that stops short of Lehman Brothers, we cannot afford to be complacent about this. I am giving the chance of this happening, and it will happen on Aug. 15 apparently, only 10%-20%. …

http://www.thestreet.com/p/_jcblog/rmoney/jimcramerblog/11200260.html

No one said you are not taking a huge risk to gamble in the stock market. There won't be a bail out the next time.

 

[CrusaderFrank]

As fucked up as we are, where else can people put their money?

 

[editec]

I think his analysis is pretty good.

The treat of the USA reneging entirely on its debts is rather small.

No doubt Congress will pass "reform" (read a screwing) in Social Security that will make its obligation to pay SS back in a timely fashion somewhat less egregious.

Any default however, is going to drive up the cost of borrowing money for ALL of us.

That is undoubtably going to negatively effect the stock market as well as the economy as a whole.

 

[Zander]

I totally disagree. If the US doesn't increase the debt ceiling they become a more attractive borrower, not less. It shows that the US is serious about reining in it's debt.

The existing bondholders will be paid. The US will not default. The misinformation and fear mongering over this issue is mind blowing.....

 

[editec]

I totally disagree. If the US doesn't increase the debt ceiling they become a more attractive borrower, not less. It shows that the US is serious about reining in it's debt.

The existing bondholders will be paid. The US will not default. The misinformation and fear mongering over this issue is mind blowing.....

The question is, if the USA does not increase its debt ceiling who WILL it pay and who won't it pay?

If, as we are often told, the USA borrows 60% of the money it spends every year, (the other 40% they pay from revenues) then, sans the ability to issue new debt, in THEORY, the government will have to stop paying for 60% of its current obligations.

Now what exactly can the government stop doing that will amount to a 60% decrease in its operating budget?

 

[Sarah G]

… The issue now is that there are "different" defaults. The first kind of default, which isn't a real default, just a technical one, is that certain bills do not get paid. I think this has become a likely scenario now, growing 5% to 10% more likely every 72 hours that we draw close to the Aug. 2 deadline. Let's call it 50-50 for now. The consequence? A 2% to 4% decline in the S&P 500 across the board …

There is a second form of default, though, that isn't innocent and will lead to a bigger decline to the market, one that I shudder to think about. Let's call it the nuclear option. That's the one where the nation doesn't pay its bills. That's right, we don't pay interest or principal on the bonds. If we don't pay for one day, I don't think it can be contained by just 4%. We don't pay for three days, and I think the S&P can go down as much as 10%.

(A debt downgrade either way is almost a given, and that's part of the 2%-4% decline scenario.)

Why did this come about? What has changed? Speaker Boehner has lost control of his party. The deciding faction is the Tea Party faction, and they can be considered, for lack of a more diplomatic term, anarchists in this debate. They actually can be considered pro-default as a wake-up call.

The issue there is that the wake-up call will be felt around the world, and while we will have something that stops short of Lehman Brothers, we cannot afford to be complacent about this. I am giving the chance of this happening, and it will happen on Aug. 15 apparently, only 10%-20%. …

http://www.thestreet.com/p/_jcblog/rmoney/jimcramerblog/11200260.html

I like his guarded concern but what percentage of the time is Cramer right? I used to watch his program and I saw his debate with Jon Stewart. I'm skeptical about his opinions.

 

[Zander]

I totally disagree. If the US doesn't increase the debt ceiling they become a more attractive borrower, not less. It shows that the US is serious about reining in it's debt.

The existing bondholders will be paid. The US will not default. The misinformation and fear mongering over this issue is mind blowing.....

The question is, if the USA does not increase its debt ceiling who WILL it pay and who won't it pay?

If, as we are often told, the USA borrows 60% of the money it spends every year, (the other 40% they pay from revenues) then, sans the ability to issue new debt, in THEORY, the government will have to stop paying for 60% of its current obligations.

Now what exactly can the government stop doing that will amount to a 60% decrease in its operating budget?

They borrow 40%. They will have to furlough employees, eliminate programs. Cut back on the military. Stop paying for silly shit like scientific studies of shrimp running on treadmills! The glory days of spend, spend, spend are over. Spending needs to match revenue, it ain't rocket science!

 

[Ravi]

I totally disagree. If the US doesn't increase the debt ceiling they become a more attractive borrower, not less. It shows that the US is serious about reining in it's debt.

The existing bondholders will be paid. The US will not default. The misinformation and fear mongering over this issue is mind blowing.....

The question is, if the USA does not increase its debt ceiling who WILL it pay and who won't it pay?

If, as we are often told, the USA borrows 60% of the money it spends every year, (the other 40% they pay from revenues) then, sans the ability to issue new debt, in THEORY, the government will have to stop paying for 60% of its current obligations.

Now what exactly can the government stop doing that will amount to a 60% decrease in its operating budget?

They borrow 40%. They will have to furlough employees, eliminate programs. Cut back on the military. Stop paying for silly shit like scientific studies of shrimp running on treadmills! The glory days of spend, spend, spend are over. Spending needs to match revenue, it ain't rocket science!

In other words, add more people to the unemployment rolls. Not very sensible in a crumbling economy.

 

[Toro]

As fucked up as we are, where else can people put their money?

That's a very good question Frank. What happens when the riskless asset becomes risky? We've been contemplating that question for the past few weeks now. However, the answer is not "US stocks."