What's Ahead for the Economy and Politics in 2010

Here are likely scenarios, with my probabilities:

Double-dip recession (10 percent likelihood). The commercial real estate market craters, carrying with it hundreds of regional banks and exposing how much junk is still on the books of major Wall Street banks. This triggers a long-awaited "correction" in the Dow and pushes the nation into another recession. Job losses rise. By November, the unemployment rate is back over 10 percent.

Stalled recovery (20 percent). Fearing inflation and overly confident of the strength of the recovery, the Fed stops buying up debt instruments and starts raising rates. These acts choke off the recovery. Unemployment remains at 10 percent.

Jobless recovery (40 percent). The stimulus remains in full force, the Fed keeps interest rates low, firms replace inventories and expand production. But with the average workweek hovering around 33 hours, employers don't add new jobs; they just have current workers put in more hours. Result: No drop in unemployment.

Solid recovery (20 percent). Demand surges, employers decide to expand capacity. But they don't add American jobs. Now that foreign workers have access to much of the same equipment and can be linked up to the U.S. so cheaply through the Internet, employers outsource abroad. Result: No drop in unemployment.

Strong recovery (10 percent). The recovery is strong enough for employers to start hiring American workers. Many jobless Americans who have been too discouraged to look for work to begin looking again. But because the BLS household survey (on which the official level of unemployment is based) depends on how many Americans are looking for work, the paradoxical result is for unemployment to remain in double digits.

In other words, I think the chances of unemployment being 10 percent next November are overwhelmingly high. But although voters are acutely sensitive to the rate of unemployment, they're also influenced by the direction employment is heading. If it looks like jobs are coming back, they may forgive a high absolute level of unemployment -- even one as high as 10 percent. But if it looks like jobs aren't coming back, that we may be stuck with a high level of joblessness for years, voters will take out even more of their anxieties on Democrats next November.

The irony, of course, is that Republicans want to cut spending and reduce the deficit. If they had their way, we'd have double-digit unemployment as far as the eye can see.