Cramer Warns Increasing National Debt Could Cause Bear Market in 18 Months

Since hitting their lows back in March, financial markets have rallied in the wake of last year’s financial crisis. The Dow Jones Industrial Average (DJIA) is up 43 percent since March 9. But can it last?

It could be all given up with this rate of government spending according to CNBC “Mad Money” host Jim Cramer. Cramer, responding to a viewer e-mail, explained what a higher national debt would mean to the average citizen and investors in the near and long term. He said expect the market to go down and higher taxes eventually.

“I know that this is going to mean our taxes are going to go way up,” Cramer said. “I have to tell you this eventually means this market will come down. It is in when what I call the out years, not to worry about it yet.”

Cramer also said if there wasn’t some discretion exercised by Congress with the purse strings – Americans could see the financial markets face bear conditions.

“It weighs on me every day,” Cramer added. “It should weigh on you too and if there isn’t some discipline in Congress, we’re going to be talking about a new bear market in 18 months if we don’t get this stuff under control.”

A textbook definition of the beginning of a bear market is a downturn of 20 percent or more in multiple broad market indexes, including the DJIA or the Standard & Poor’s 500 Index (S&P 500), over at least a two-month period.

Cramer hasn’t been alone in sounding the alarm about government spending and its eventual impact on the economy. A new study by economists Charles Rowley of George Mason University and Nathanael Smith of the Locke Institute and endorsed by Nobel laureate James Buchanan, says the Keynesian tactics employed by the Obama administration causing huge government deficits “will ultimately hamper the long-term growth potential of the U.S. economy and may risk delaying full economic recovery by several years.” The study accuses the president of making Depression-era mistakes.

“[W]e know from history that when you have huge amounts of debt and huge amounts of government spending, contrary to what a lot of economists believe – that doesn’t cause economic growth,” Wall Street Journal editorial board member and senior economics writer Stephen Moore said on Fox News Channel’s Sept. 7 “On the Record.” “That actually causes more Americans to lose their job because you have this huge amount of debt and the government usually spends the money on inefficient things.”