Unemployment Rate Could Reach 8.5-9 Percent, Economist Says

Friday's jobs report is expected to show payrolls dropped 325,000 in November, which will be the 11th consecutive month of declining payrolls. The unemployment rate is forecast to rise to 6.8%, which would be the highest since 1993, Bloomberg reports.

If that's not bad enough, "it's going to get a lot worse before it gets better," says Nariman Behravesh, chief economist of IHS Global Insight and author of Spin-Free Economics. Unemployment will peak in the 8.5% to 9% range sometime in late 2009, Behravesh predicts, noting the economy typically turns around (he thinks mid-summer) before employers start hiring again.

And if the Obama administration fails to deliver the "massive" fiscal stimulus Behravesh says is needed, the unemployment rate will ultimately top the current post-World War II high of 10.8%, reached in 1982.

But what about all those "worst crisis since the Great Depression" comments? Earlier this week, Ben Bernanke said there is "no comparison" between the current environment and the Great Depression.

"The stress [in the 1930s] was a lot worse anything we've been through so far, or are likely to go through," Behravesh says, citing the following key distinctions:

• Using the current Labor Department measures (i.e., an apples-to-apples comparison), unemployment in the Great Depression was probably closer to 30% than the oft-cited 25% level.
• There was no FDIC, Social Security, unemployment insurance or other "safety nets" in the 1930s.
• The Fed was "in denial" in the 1930s.

While very critical of Hank Paulson for his "chaotic" response, Behravesh gives Ben Bernanke's Fed high marks for aggressively attacking the crisis.

That's a debate for another time but there's no debating Bernanke's Fed has been, in Behravesh's words: "Pumping [money into the economy] like crazy and doing unorthodox things."