Today's Fed faces the same temptation. It could ease today's discomfort by rapidly expanding the money supply. But the remedy is illusory. Homes are not worth what they used to be, and for the Fed to attempt to disguise the fact would create even more uncertainty in a turbulent market. That, in turn, would merely postpone the day when prices hit the inevitable bottom.
When you have a loss of wealth, the best way to cope is to accept it and adapt to a lower standard of living, sooner rather than later. Sending out rebates, eliminating gas taxes, bailing out homeowners and accelerating monetary growth, among the proposed remedies, do exactly the opposite. They spare us the obligation of dealing with reality by making us feel richer so we can keep on as we were before. But they don't change the stark fact that we are poorer now and will remain that way for some time. And they ultimately backfire by wasting money, igniting inflation or both.
