I have written about QE2 in the past, and since QE3 now seems baked in to various asset prices, its time to revisit this chimera.
Swapping zero maturity assets (cash) for various medium and long-dated assets (primarily bonds) is a dangerous way to stimulate the economy.
The Fed believes that ZIRP (Zero Interest Rate Policy) will stimulate the economy by lowering the cost of capital. But what it does not seem to appreciate is the supply and demand factors it has intefered with, causing massive distortions that further depress whatever nascent Shumpeterian creative destruction process that was painfully progressing.
So, a given supply of bonds is converted into cash via Fed purchases. The holders of this new found largesse must re-invest. This is one of the reasons we see a "substitution effect" in stocks and commodities. When supply is constricted, the money must flow somewhere. This has exacerbated global market distortions
Another serious problem is the paucity of collateral. Bonds are posted as collateral for a myriad different transactions, and removing supply from these markets produces detrimental results. Money market rates, LIBOR, and other measures of short term lending have been seriously effected by this. This is doubly important because the INTEREST RATE CHANNEL IS BROKEN. What matters now are the credit markets, which do not need any more friction. Unfortunately, this is precisely what has happened with QE.
So, imnsho, the QE has done more harm than good...this for a program that has no net effect economically, but massive effects for otherwise competitive and efficient markets.