From James Grant in the WAPO:

Low interest rates, easy money and malleable accounting rules are what plunged Wall Street into crisis. Yet it is low interest rates, easy money and malleable accounting rules that top the list of federal fixes. The unifying theme of the new bailout bill, all 451 pages of it, is the hair of the dog that bit you.

The unblinkable fact is that Americans own too much house. We overpaid and overborrowed, and many of us are “upside down,” as the car dealers say. What to do? Recognize the losses and write them off. What not to do? Inflate the currency and debase accounting standards.

But inflation and debasement are the very policies being put in place. The Federal Reserve, not waiting for Congress, embarked last month on a radical program of money-printing. Reserve Bank credit — the raw material of bank lending — is growing at the year-over-year rate of 61 percent.

It is illogical to conclude that an economic crisis caused by excessive debt can be cured by “getting the credit markets working again” as so many have said. Nor does it make sense to create more dollars at a time when the world is awash in the darn things. Nevertheless, that is what the politicians propose and what they intend to do. Will it fix the problem? I have my doubts as does Grant:

How can they be so sure? And how can they know that the unintended consequences of the radical policies they are pushing through won’t be worse than the panic that they themselves are helping to foment? When the Fed insists it has no choice but to print up hundreds of billions of new dollars and when the keepers of accounting standards bend in the face of criticism that market prices hurt, what they are really saying is the that financial truth is too awful to bear. Heaven help us all if they’re right.

That our debts are too high is obvious as is the cure. We need to reduce debt and save. Too bad that is deemed too painful for our citizens. Why couldn’t we have a leader with the ability to convince the public to take their medicine? Neither Obama or McCain is the man for that job. Both are too dour in mood and lacking in imagination.