By John W. Schoen Senior producer
msnbc.com
updated 11/5/2009 5:25:31 PM ET 2009-11-05T22:25:31

Out of work, out of savings and out of things to sell, Carolyn Johansen is running out of options to keep her home even as her unemployment benefits run out.

"By February I will be in a tent," said Johansen, from Fredericksburg, Va. “My big concerns are finding homes for my German shepherd Anna and my cat Tigra and a free place to store a thousand hardback and paperback books.”

For millions of out-of-work job seekers like Johansen, unemployment insurance is providing an increasingly tenuous financial lifeline.

With jobless benefits expiring for a record number of workers, some 7,000 a day, Congress is sending the president legislation to expand a popular homebuyers tax credit and extend unemployment benefits.  The $24 billion economic package seeks both to propel a sluggish economic recovery and help out the millions who have lost jobs and have been unable to rejoin the workforce.  

Under the measure, the $8,000 tax credit for first-time homebuyers would be extended for seven months and expanded with a $6,500 credit for some prospective homebuyers who already own homes.  The nearly 2 million people who have lost or are in danger of exhausting unemployment benefits before the end of the year would receive up to 20 weeks in additional benefits.

The measure comes as state unemployment insurance funds are running low, and tight budgets are fraying the safety net that jobless workers without benefits rely on.

After losing her job last October, Johansen figures she’s applied for over 300 jobs, but can’t find anything, not even seasonal work for the holidays. A single mom with a master’s degree and a career as a librarian, she applied for work at Blockbuster this week but couldn’t get an interview.

Johansen said she’s burned through her IRA and 401(k) savings and sold everything she could sell, including her jewelry. She applied for food stamps, but her $297 weekly jobless benefit, which expires Dec. 31, is $12 too high to let her qualify. She sent her teenage daughter to live with her older sister in Nevada; a disabled son who lives with her is scheduled to enter a residential treatment center in March.

Nearly two months after it was introduced in the House, the benefits extension has been delayed by debate over its cost and how to pay for it. Passage also has been complicated by added provisions that would extend tax credits for businesses and first-time home buyers.

As Congress has debated, weekly checks have run out for nearly 400,000 people. Friday’s looming employment report, expected to show another roughly 200,000 workers lost their jobs in October, has increased the political pressure on both parties to pass the measure. 

“I just sent in my form requesting my last unemployment check,” Jim Schmitt, 58, of Apple Valley, Calif., said in an e-mail. “I have always voted Republican, and now I'm reading the Republicans are holding up the vote to extend the benefits. I might not be voting Republican again, even though the Democrats are no better.”

Under the Senate bill, jobless benefits would be extended by 14 weeks for workers who have exhausted their benefits. Those in states with jobless rates of 8.5 percent or more would get another six weeks of benefits, for a total of 20 weeks extra.

The extension would help head off financial suffering for the hundreds of thousands who face the loss of benefits by year's end. It also would help shore up a frail economy in the very early stages of a recovery from the worst contraction since the Great Depression.

For millions of households, the outlook remains bleak. Roughly 6,600 new foreclosures are filed every day, or about one every 13 seconds.  As of the end of September, some 2.6 million mortgages were in some stage of foreclosure and another 1.6 million loans were 90 days late and headed there. Another 6 million families could lose their homes over the next three years, according to the Treasury Department.

The rise in homelessness is straining state and local budgets, already reeling from lower tax receipts, as they try to cope with the increased need for social services. In Fredericksburg, Va., said Johansen, local nonprofits have take up some of the slack, but they’re still stretched.

“There are 80 beds in the homeless shelter, and every night they turn people away,” she said.

Though massive government spending has given the economy a lift, any recovery will be short-lived unless it’s followed by a sustainable recovery of consumer spending, which accounts for two-thirds of economic activity.

“It’s about supporting demand,” said Mark Zandi, chief economist at Moody’s Economy.com. “If unemployed workers have no social safety net, they have to significantly ramp back their spending. And in many cases they force everyone around them to ramp down, too. They’re borrowing money from their family and friends and putting financial pressure on everyone.”

Aside from easing financial suffering, extending unemployment benefits is one of the most efficient ways to stimulate the economy, say some economists. Zandi estimates that, with the exception food stamps, money spent to extend unemployment insurance gets the biggest bang for the buck, roughly $1.61 in added economic activity for every dollar spent. That’s because the payments are typically spent right away unlike, say, tax cuts which may be diverted into savings.

“They’ve gone through their savings,” said James Parrott, chief economist of the Fiscal Policy Institute, a New York state think tank. “You can pretty much expect that they will take every dollar they get in extended unemployment benefits and spend that money to cover basic essentials for living.”

An extension of benefits will help some but not all unemployed workers. For one thing, even an extra 13 weeks won't be enough for some job seekers.

As of September a record 5.4 million workers had been out of a job for 27 weeks or more, more than double year-ago levels and the highest since the government began tracking the data in 1948.

Those numbers don’t include 2.2 million people who are considered “marginally attached to the labor force” — up from 615,000 a year earlier. These people don’t show up in the official unemployment numbers because they didn't look for work in the 4 weeks preceding the survey.

Having that many people without a financial safety net can put a serious damper on overall consumer confidence, said Zandi.

“Nothing is more debilitating than having no financial resources,” he said. “But it’s also very psychologically scarring on everyone around that unemployed person. It’s scary to see that happen. And confidence in a recession is so important — it’s the key to spending and investment and everything else that drives the economy forward.”

After his unemployment benefits ran out last week, Bruce Cordray, of Ypsilanti, Mich., said the state of Michigan was able to extend them for another 16 weeks. Though his wife is still working, their household income is about a third of what it was when he was working.

With a business degree and a 36-year career in industrial engineering and purchasing management, Cordray lost his job with an auto parts manufacturer in March. Since then, he’s been trolling job listings and consulting for several manufacturers for free in hopes their businesses grow enough that they can afford to hire him.

To make ends meet, he and his wife have “gotten creative.”

“I have a big home garden and we have taken on 25 chickens,” he said. “I’ve never had any type of livestock before. But we do sell the eggs.”

Extending unemployment benefits would help bring stability to the housing market, without which the current weak recovery could be snuffed out.

Early in the downturn, the majority of foreclosures resulted from bad mortgages. Today, the rise in unemployment is the biggest cause of foreclosure, according to Neighborworks, a nonprofit housing agency that works with families to save their homes. Homeowners facing foreclosure can use jobless benefits as qualifying income under the government’s mortgage modification program. 

For those without a financial lifeline, the choices can become stark. Deb Saunders and her husband are getting back on their feet since relocating to Texas after she lost her job at Wells Fargo and he lost his in construction. After selling everything they had, they bought a 25-year-old RV.

“We were almost homeless,” she said. “We thought, ‘We‘re going to get through this. At least they can’t take the RV away from us. Worst-case scenario we can park it in Wal-Mart because Wal-Mart lets you do that. We’ll just have to drive it around.”

Her husband is working again, and they’re renting a house. But two months after filing for jobless benefits, she’s still waiting for the paperwork to be processed.

“They’re saying (the delay) is  because of all the new claims that are being filed,” she said. 

Extending jobless benefits for 13 weeks may help postpone painful choices, but the dismal job market is taking an emotional toll on the nearly 15 million Americans who are out of work or have been forced to take a job well below their earning potential.

Some economists warn that these levels of long-term unemployment and underemployment could have a lasting impact on the economy.

“If it continues for very long, it really degrades the quality of the labor force,” said Parrott. “The quality of skills erodes from being unemployed or underemployed. And that represents a reduction in the economic potential of the economy.”

NBC News’ Alex Presha and Bernard Lubell contributed to this story.

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