PORT WASHINGTON, N.Y. (MarketWatch) -- Unanswered in the growing debate over the need for monetary and fiscal stimulus is the question can conventional remedies cure an unconventional economic problem?

In the past, when the U.S. economy ran into trouble, there were tried and true remedies that policymakers could implement in order to turn things around.

The Federal Reserve would swing into action by cutting interest rates and injecting additional liquidity into the banking system. Then, with a lag traceable only to the normal workings of the political process, the Congress and the president would join in by cutting taxes and increasing government spending.

And on those rare occasions when this softness would occur in a year divisible by four (a presidential election year), the political process would miraculously go into overdrive, since it became a question of saving one's own political skin as well.

However, this is not your father's recession, thus what worked in his day may not work this time around. Yes, fans, this time it really is different.

First you have the housing crisis. While housing has led us into and out of recessions many times before, it's going to take more than monetary or fiscal ease to get us out of today's jam.

There is an oversupply of houses that, nationwide, would take almost a year to work off at current sales rates. And that's assuming both supplies and sales hold steady.

But supplies are rising even as homebuilding is falling because of growing foreclosures. Meanwhile, sales are declining because prices are still too high while lending standards have tightened dramatically.

Lower interest rates will not be of much help. For one thing, they won't prevent many mortgage loans from resetting to higher rates. For another, as noted above, banks are reluctant to lend while many borrowers don't want to (or can't) borrow.

Freezing or otherwise modifying rates on loans in jeopardy is bad policy for three reasons:

(1) It would not be fair to those who were more careful when they bought their home.

(2) It will create a moral hazard -- the notion that the government stands ready to bail people out of bad decisions.

(3) It will set a precedent of government intervention changing the rules of the game for investors, since many of these mortgages have been turned into securities, as everyone knows by now.

On the fiscal side, spending increases need to be targeted at the unemployed by boosting jobless benefits, otherwise they won't be of much help, near term.

For their part, tax cuts will have limited effects as well: unless they are structured to encourage more spending immediately, they will simply go toward paying down debts and/or replenishing depleted savings accounts.

Let us not forget some fundamental principles as well:

1. Inflation is first and foremost a monetary phenomenon, and by easing money the Fed is laying the groundwork for a pickup in the already rapid pace of price increases later on.

2. Tax cuts and spending increases mean Washington must borrow more. If it borrows from the financial markets, it will push interest rates higher. If it borrows from the Fed, the money supply will grow faster.

At any rate, for these remedies to cure what ails us, housing prices need to fall to their equilibrium level. As I said on Dec. 3 and Dec. 17, this means a drop of at least 25%.

See Dec. 17 column here.

See Dec. 3 column here.

The quicker home prices fall, the sooner the housing market will stabilize, the faster holders of mortgage-backed securities will be able to judge their worth, thus triggering renewed bank lending, and the sooner the economy can get back on its feet.