Although oil prices and grain prices are up and the dollar is weak, people have to recognize which inflation can be controlled by the Fed and which can't be, Jim Cramer said on TheStreet.com TV's Wall Street Confidential
Web video Tuesday. "My theory is that you can take interest rates to any price and it wouldn't matter," he said. "Those things oil and grain are just out of the Fed's control." What is in the Fed's control, Cramer continued, is the "remarkable deterioration" in the domestic economy. "If people listen to literally any conference call, with the exception of maybe Costco ( COST), they are going to hear the same thing over and over again, which is that domestic is bad," he said. Why anyone thinks that domestic should be bad is a testament to how many people are bearish and want to be short. "The thing that would knock the market down huge is obviously if they don't cut," Cramer explained. "So if I were short, if I were betting against this market, I would be putting out the word that they're not going to cut or that they shouldn't cut. "I find that this has been going on all year," he went on. "All year people have been in denial about how weak the economy is, all year people have been focused much more on inflation. It's deflation that I'm worried about." At this point, it's unlikely the Fed can save Countrywide ( CFC), Ambac ( ABK), PMI ( PMI), MBIA ( MBI), and maybe even Washington Mutual ( WM), Cramer said. "I don't think you can save anybody who took a mortgage between 2005 and 2007 and took the down payment and paid it with home equity," he said. "I think they're all wiped out." Now, he believes the important thing to do is to try to not wipe out the people who took out loans in 2007, which is why the Fed has to make a move. There's a sense that if the Fed doesn't cut, the dollar will get stronger, but "the dollar is highly correlated to economic growth, not to the price of money," Cramer said. "I've seen whole economies raise interest rates to be able to defend their currency and fail repeatedly," he said. "Where people want to be is in a country that is controlling its own fate, tends not to have as big a trade deficit as we have and is growing, and our country is not growing, therefore you don't want the currency." If there is no cut, "Armageddon is back on the agenda," Cramer warned. Countrywide is currently fighting for its life, and even though Bank of America ( BAC) and Wachovia ( WB) are not at that stage yet, "as these companies report quarter of quarter of losses ... people will begin to see this thing very differently. "I read the balance sheets and the balance sheets are signaling that there is a lot of stress in the system and we don't want it to get out of control," he said.