Even with the stimulus, we could still see 15 percent unemployment

In my previous column, I argued that the business cycle has more pain in store, even as unemployment grows. My goal in this column is to make a realistic appraisal of the possibility that unemployment could continue to rise after the $787 billion Federal stimulus spending runs its course next year.

The Federal government has taken truly unprecedented measures to reverse the recession and spark a new round of consumer and business borrowing and spending. It has borrowed almost six percent of the nation's GDP (the $787 billion stimulus) to spread "free money" in every city, county and state in the land. At the same time, it has essentially taken over the entire mortgage market, underwriting almost all new mortgages originated this year.

Both the massive stimulus spending and the $1.25 trillion mortgage support are slated to end next year. The trillion-dollar question is: will this $2 trillion re-inflate housing values, consumer confidence and thus consumer borrowing and spending?