Get Ready for the Crisis the Fed Faces

Look, it's all about credit and liquidity, not inflation and rising home prices. That's what the Federal Reserve has to target. If I were the Fed right now, I would be checking to see how Visteon (VC - commentary - Cramer's Take) and Delphi (DPH - commentary - Cramer's Take) are doing in the credit markets, not the equity markets. I would be checking commercial paper availability for these companies.

I would be doing that because they are a precursor to the much larger issue, the looming crises in Ford (F - commentary - Cramer's Take) and General Motors (GM - commentary - Cramer's Take).

You see, it doesn't matter how high or low you take the short rates. At a certain point, nobody's going to lend to Ford and General Motors. The commercial paper that these companies need is going to vanish. And with it will go the equity, the jobs and the bonds that stand behind the companies. That's not something that Alan Greenspan wants to be remembered by.

It is true that we have some inflation in the system, no doubt about it. It is true that our current accounts deficit is too high. It is true that we have speculators in the home business.

But there is a gathering sense in the credit markets right now that if the Fed stays hawkish here, GM and Ford will go under. Yes, go under. That can happen. Right now, the only real hole in the system seems to be with a couple of Puerto Rican banks. We can handle that.

We can't handle, however, the wipe-out of GM and Ford. Not now. These are not United Airlines and U.S. Air. We are not far enough along in the U.S. economy transition to be able to withstand the collapse of both companies. And believe me, despite the monster increase in short positions at GM -- something that is very costly, given the dividend that the shorts have to pay -- we are nowhere near hedged out as a system.

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At the time of publication, Cramer was long Altria, J.P. Morgan and PNC Financial.

James J. Cramer is a director and co-founder of TheStreet.com. He contributes daily market commentary for TheStreet.com's sites and serves as an adviser to the company's CEO. Outside contributing columnists for TheStreet.com and RealMoney.com, including Cramer, may, from time to time, write about stocks in which they have a position. In such cases, appropriate disclosure is made. To see his personal portfolio and find out what trades Cramer will make before he makes them, sign up for Action Alerts PLUS. While he cannot provide personalized investment advice or recommendations, he invites you to send comments on his column to [e-mail]. Listen to Cramer's RealMoney Radio show on your computer; just click here. Watch Cramer on "Mad Money" at 6 p.m. ET weeknights on CNBC. Click here to order Cramer's latest book, "Real Money: Sane Investing in an Insane World," click here to get his second book, "You Got Screwed!" and click here to order Cramer's autobiography, "Confessions of a Street Addict."